**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

**FORM 10-Q**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**Forthe quarterly period ended March 31, 2007**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**Forthe transition period from                to                **

**Commissionfile number 0-22149**

**EDGE PETROLEUM CORPORATION**

(Exact name of registrantas specified in its charter)

| **Delaware**                                                     | ** ** | **76-0511037**                        |
|------------------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |       | (I.R.S. Employer  Identification No.) |
|                                                             |       |                                  |
| **1301  Travis, Suite 2000**                                     | ** ** | ** **                            |
| **Houston,  Texas**                                              |       | **77002**                             |
| (Address of  principal executive offices)                        |       | (Zip code)                            |

 

**(713) 654-8960**

(Registrant’s telephonenumber, including area code)

Indicateby checkmark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15 (d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

xYes o No

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filed,or a non-accelerated filer. See definition of “accelerated filer and largeraccelerated filer” in Rule 12b-2 of the Exchange Act.:

| o  Large accelerated filer |   | xAccelerated  filer |   | o  Non-accelerated filer |
|----------------------------|--------|---------------------|--------|--------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

oYes x No

Indicate the number of shares outstanding of each ofthe issuer’s classes of common stock, as of the latest practicable date.

| **Class**    |   | **Outstanding  at May 7, 2007** |
|--------------|--------|---------------------------------|
| Common Stock |   | 28,459,848                      |

 

 

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**EDGEPETROLEUM CORPORATION**

**Table ofContents**
|                                                                                                                            | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|
| Part I. Financial  Information                                                                                             |       |
| Item 1. Financial  Statements:                                                                                             |       |
| Consolidated  Balance Sheets as of March 31, 2007 and December 31, 2006                                                    |       |
| Consolidated Statements of  Operations for the Three Months Ended March 31, 2007 and March 31, 2006                        |       |
| Consolidated Statements  of Other Comprehensive Income(Loss) for the Three Months Ended March 31, 2007  and March 31, 2006 |       |
| Consolidated Statements of Cash  Flows for the Three Months Ended March 31, 2007 and March 31, 2006                        |       |
| Consolidated Statement of  Stockholders’ Equity for the Three Months ended March 31, 2007                             |       |
| Notes to  the Consolidated Financial Statements                                                                            |       |
| Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of  Operations                       |       |
| Item 3.  Qualitative and Quantitative Disclosures About Market Risk                                                        |       |
| Item 4. Controls  and Procedures                                                                                           |       |
| Part II. Other  Information                                                                                                |       |
| Item 1. Legal  Proceedings                                                                                                 |       |
| Item 1A. Risk Factors                                                                                                      |       |
| Item 2.  Unregistered Sale of Equity Securities and Use of Proceeds                                                        |       |
| Item 3.  Defaults Upon Senior Securities                                                                                   |       |
| Item 4.  Submission of Matters to a Vote of Security Holders                                                               |       |
| Item 5. Other  Information                                                                                                 |       |
| Item 6. Exhibits                                                                                                           |       |
| Signatures                                                                                                                 |       |

 

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**PART I. FINANCIAL INFORMATION**

**Item 1.Financial Statements**

**EDGE PETROLEUM CORPORATION**

**CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                                                                                                                                  | ** **   | **March 31,  2007**                                  | ** **   | **December  31, 2006** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|-----------------------------------------------------------|--------------|-----------------------------|------------|
| ** **                                                                                                                                                                                                                  | ** **   | **(Unaudited)**                                           | ** **   | ** **                  | ** ** |
| ** **                                                                                                                                                                                                                  | *** *** | **(in thousands, except share data)** | *** *** |
| **ASSETS**                                                                                                                                                                                                                  |         |                                                      |         |                        |       |
| CURRENT ASSETS:                                                                                                                                                                                                             |         |                                                      |         |                        |       |
| Cash and cash  equivalents                                                                                                                                                                                                  |         | $                                                         | 4,027        |                        | $          | 2,081 |   |
| Accounts  receivable, trade, net of allowance                                                                                                                                                                               |         | 29,026                                                    |         | 17, 738                     |       |
| Accounts  receivable, joint interest owners, net of allowance                                                                                                                                                               |         | 3,309                                                     |         | 2,217                       |       |
| Deferred tax  asset                                                                                                                                                                                                         |         | 6,164                                                     |         | —                      |       |
| Derivative  financial instruments                                                                                                                                                                                           |         | —                                                    |         | 5,945                       |       |
| Other current  assets                                                                                                                                                                                                       |         | 4,916                                                     |         | 3,959                       |       |
| Total current  assets                                                                                                                                                                                                       |         | 47,442                                                    |         | 31,940                      |       |
| PROPERTY AND EQUIPMENT,  net — full cost method of accounting for oil and natural gas properties  (including unproved costs of $88.5 million and $57.6 million at March 31,  2007 and December 31, 2006, respectively) |         | 667,696                                                   |         | 289,457                     |       |
| OTHER ASSETS                                                                                                                                                                                                                |         | 3,570                                                     |         | 260                         |       |
| TOTAL ASSETS                                                                                                                                                                                                                |         | $                                                         | 718,708      |                        | $          | 321,657 |   |
| ** **                                                                                                                                                                                                                  | ** **   | ** **                                                | ** **   | ** **                  | ** ** |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                                                                              | ** **   | ** **                                                | ** **   | ** **                  | ** ** |
| CURRENT LIABILITIES:                                                                                                                                                                                                        |         |                                                      |         |                        |       |
| Accounts  payable, trade                                                                                                                                                                                                    |         | $                                                         | 3,023        |                        | $          | 3,953 |   |
| Accrued  liabilities                                                                                                                                                                                                        |         | 15,217                                                    |         | 16,638                      |       |
| Accrued interest  payable                                                                                                                                                                                                   |         | 2,752                                                     |         | 541                         |       |
| Deferred tax  liability                                                                                                                                                                                                     |         | —                                                    |         | 433                         |       |
| Asset retirement  obligation — current                                                                                                                                                                                 |         | 332                                                       |         | 213                         |       |
| Derivative  financial instruments                                                                                                                                                                                           |         | 8,872                                                     |         | —                      |       |
| Total current  liabilities                                                                                                                                                                                                  |         | 30,196                                                    |         | 21,778                      |       |
| ASSET RETIREMENT  OBLIGATION — long-term                                                                                                                                                                               |         | 3,996                                                     |         | 3,158                       |       |
| DERIVATIVE FINANCIAL  INSTRUMENTS                                                                                                                                                                                           |         | 3,684                                                     |         | 758                         |       |
| DEFERRED TAX LIABILITY                                                                                                                                                                                                      |         | 14,581                                                    |         | 10,911                      |       |
| OTHER NON-CURRENT  LIABILITIES                                                                                                                                                                                              |         | 534                                                       |         | —                      |       |
| LONG-TERM DEBT                                                                                                                                                                                                              |         | 240,000                                                   |         | 129,000                     |       |
| Total  liabilities                                                                                                                                                                                                          |         | 292,991                                                   |         | 165,605                     |       |
| COMMITMENTS AND  CONTINGENCIES (NOTE 10)                                                                                                                                                                                    |         |                                                      |         |                        |       |
| STOCKHOLDERS’ EQUITY:                                                                                                                                                                                                  |         |                                                      |         |                        |       |
| Preferred stock,  $0.01 par value; 5,000,000 shares authorized; 2,875,000 issued and  outstanding at March 31, 2007 and none at December 31, 2006                                                                           |         | 29                                                        |         | —                      |       |
| Common stock,  $0.01 par value; 60,000,000 shares authorized; 28,442,667 and 17,442,229  shares issued and outstanding at March 31, 2007 and December 31, 2006,  respectively                                               |         | 284                                                       |         | 174                         |       |
| Additional paid-in  capital                                                                                                                                                                                                 |         | 418,894                                                   |         | 141,685                     |       |
| Retained earnings                                                                                                                                                                                                           |         | 6,510                                                     |         | 14,193                      |       |
| Total  stockholders’ equity                                                                                                                                                                                            |         | 425,717                                                   |         | 156,052                     |       |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                                             |         | $                                                         | 718,708      |                        | $          | 321,657 |   |

 

See accompanyingnotes to consolidated financial statements.

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**EDGE PETROLEUM CORPORATION**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS (Unaudited)**
| ** **                                                   | ** ** | **Three Months Ended  March 31,**                  | ** ** |
|--------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                   | ** ** | **2007**                                                          | ** ** | **2006** | ** ** |
| ** **                                                   | ** ** | **(in thousands,  except per share amounts)** | ** ** |
| OIL AND NATURAL GAS  REVENUE:                                |       |                                                              |       |   |   |
| Oil and natural  gas sales                                   | ** ** | $                                                                 | 39,214     | ** ** | $ | 32,895 | ** ** |
| Gain (loss) on  derivatives                                  |       | (16,331                                                           | )          | 2,099 |   |
| Total revenue                                                |       | 22,883                                                            |       | 34,994 |   |
|                                                         |       |                                                              |       |   |   |
| OPERATING EXPENSES:                                          |       |                                                              |       |   |   |
| Oil and natural  gas operating expenses                      |       | 3,380                                                             |       | 2,189 |   |
| Severance and ad  valorem taxes                              |       | 2,311                                                             |       | 2,589 |   |
| Depletion,  depreciation, amortization and accretion         |       | 18,542                                                            |       | 15,793 |   |
| General and  administrative expenses                         |       | 4,395                                                             |       | 3,124 |   |
| Total operating  expenses                                    |       | 28,628                                                            |       | 23,695 |   |
| OPERATING INCOME (LOSS)                                      |       | (5,745                                                            | )          | 11,299 |   |
| OTHER INCOME AND  EXPENSE:                                   |       |                                                              |       |   |   |
| Interest income                                              |       | 57                                                                |       | 38 |   |
| Interest  expense, net of amounts capitalized                |       | (2,762                                                            | )          | (668 | ) |
| Amortization of  deferred loan costs                         |       | (253                                                              | )          | (42 | ) |
| INCOME (LOSS) BEFORE  INCOME TAXES                           |       | (8,703                                                            | )          | 10,627 |   |
| INCOME TAX BENEFIT  (EXPENSE)                                |       | 2,935                                                             |       | (3,735 | ) |
| NET INCOME (LOSS)                                            |       | (5,768                                                            | )          | 6,892 |   |
| Preferred Stock  Dividends                                   |       | (1,381                                                            | )          | — |   |
| NET INCOME (LOSS)  AVAILABLE TO COMMON STOCKHOLDERS          |       | $                                                                 | (7,149     | ) | $ | 6,892 |   |
|                                                         |       |                                                              |       |   |   |
| BASIC EARNINGS (LOSS)  PER SHARE                             |       | $                                                                 | (0.29      | ) | $ | 0.40 |   |
| DILUTED EARNINGS (LOSS)  PER SHARE                           |       | $                                                                 | (0.29      | ) | $ | 0.38 |   |
| PREFERRED STOCK  DIVIDENDS PER SHARE                         |       | $                                                                 | 0.06       |   | $ | — |   |
|                                                         |       |                                                              |       |   |   |
| BASIC WEIGHTED AVERAGE  NUMBER OF COMMON SHARES OUTSTANDING  |       | 24,867                                                            |       | 17,239 |   |
| DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING |       | 24,867                                                            |       | 17,976 |   |

 

See accompanyingnotes to consolidated financial statements.

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**EDGE PETROLEUM CORPORATION**

**CONSOLIDATEDSTATEMENTS OF OTHER COMPREHENSIVE INCOME (LOSS)(Unaudited)**

 
| ** **                                          | ** ** | **Three Months Ended March 31,** | ** ** |
|-----------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                          | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                                          | ** ** | **(in thousands)**                              | ** ** |
| NET INCOME (LOSS)                                   |       | $                                                    | (5,768     | ) | $ | 6,892 |   |
| Preferred Dividends                                 |       | (1,381                                               | )          | — |   |
| NET INCOME (LOSS)  AVAILABLE TO COMMON STOCKHOLDERS |       | (7,149                                               | )          | 6,892 |   |
|                                                |       |                                                 |       |   |   |
|  OTHER COMPREHENSIVE INCOME, net of tax:       |       |                                                 |       |   |   |
| Reclassification  of derivative losses (1)          |       | —                                               |       | 1,713 |   |
| Other  comprehensive income                         |       | —                                               |       | 1,713 |   |
| COMPREHENSIVE INCOME  (LOSS)                        |       | $                                                    | (7,149     | ) | $ | 8,605 |   |
|                                                |       |                                                 |       |   |   |
| (1) net of  income taxes                            |       | $                                                    | —     |   | $ | 922 |   |
|                                                |       |                                                 |       |   |   |

 

See accompanyingnotes to the consolidated financial statements**.**

5

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**EDGE PETROLEUM CORPORATION**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS (Unaudited)**
| ** **                                                                                | ** ** | **Three Months Ended March 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                                | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                                                                                | ** ** | **(in thousands)**                              | ** ** |
| **CASH FLOWS FROM OPERATING  ACTIVITIES:**                                                | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Net income (loss)                                                                         |       | $                                                    | (5,768     | ) | $ | 6,892 |   |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities: |       |                                                 |       |   |   |
| Unrealized loss  (gain) on the fair value of derivatives                                  |       | 17,743                                               |       | (1,780 | ) |
| Deferred income  taxes                                                                    |       | (2,935                                               | )          | 3,735 |   |
| Depletion,  depreciation, amortization and accretion                                      |       | 18,542                                               |       | 15,793 |   |
| Amortization of  deferred loan costs                                                      |       | 253                                                  |       | 42 |   |
| Stock based  compensation costs                                                           |       | 786                                                  |       | 407 |   |
| Changes in assets and  liabilities:                                                       |       |                                                 |       |   |   |
| Decrease  (increase) in accounts receivable, trade                                        |       | (11,288                                              | )          | 5,702 |   |
| Increase in  accounts receivable, joint interest owners                                   |       | (1,092                                               | )          | (642 | ) |
| Decrease  (increase) in other assets                                                      |       | 189                                                  |       | (440 | ) |
| Decrease in  accounts payable, trade                                                      |       | (930                                                 | )          | (1,497 | ) |
| Decrease in  accrued liabilities                                                          |       | (2,803                                               | )          | (4,035 | ) |
| Increase in  accrued interest payable                                                     |       | 2,211                                                |       | 889 |   |
| Net cash  provided by operating activities                                                |       | 14,908                                               |       | 25,066 |   |
|                                                                                      |       |                                                 |       |   |   |
| **CASH FLOWS FROM INVESTING  ACTIVITIES:**                                                | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Oil and natural  gas property and equipment additions                                     |       | (17,491                                              | )          | (40,394 | ) |
| Acquisition of  Smith assets                                                              |       | (379,457                                             | )          | — |   |
| Decrease  (increase) in drilling advances                                                 |       | (1,147                                               | )          | 1,309 |   |
| Proceeds from  the sale of oil and natural gas properties                                 |       | 1,125                                                |       | 60 |   |
| Net cash used in  investing activities                                                    |       | (396,970                                             | )          | (39,025 | ) |
|                                                                                      |       |                                                 |       |   |   |
| **CASH FLOWS FROM FINANCING  ACTIVITIES:**                                                | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Borrowings of  long-term debt                                                             |       | 240,000                                              |       | 21,000 |   |
| Repayments of  long-term debt                                                             |       | (129,000                                             | )          | (6,000 | ) |
| Proceeds of  preferred stock offering                                                     |       | 143,750                                              |       | — |   |
| Costs of  preferred stock offering                                                        |       | (5,293                                               | )          | — |   |
| Proceeds of  common stock offering                                                        |       | 144,756                                              |       | — |   |
| Costs of common  stock offering                                                           |       | (6,642                                               | )          | — |   |
| Net proceeds  from issuance of common stock                                               |       | —                                               |       | 569 |   |
| Deferred loan  costs                                                                      |       | (3,563                                               | )          | (7 | ) |
| Net cash  provided by financing activities                                                |       | 384,008                                              |       | 15,562 |   |
| **NET INCREASE IN CASH AND CASH  EQUIVALENTS**                                            |       | 1,946                                                |       | 1,603 |   |
| **CASH AND CASH EQUIVALENTS,  BEGINNING OF PERIOD**                                       |       | 2,081                                                |       | 666 |   |
| **CASH AND CASH EQUIVALENTS, END OF PERIOD**                                              |       | $                                                    | 4,027      |   | $ | 2,269 |   |

 

See accompanyingnotes to consolidated financial statements.

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**EDGE PETROLEUM CORPORATION**

**CONSOLIDATEDSTATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)**
| ** **                                                           | ** ** | **Preferred Stock** | ** ** | **Common Stock** | ** ** | **Additional  Paid-In** | ** ** | **Retained** | ** ** | **Total  Stockholders’** | ** ** |
|----------------------------------------------------------------------|------------|--------------------------|------------|-----------------------|------------|-------------------------|------------|--------------|------------|-------------------------------|------------|
| ** **                                                           | ** ** | **Shares**               | ** ** | **Amount**            | ** ** | **Shares**              | ** ** | **Amount**   | ** ** | **Capital**                   | ** ** | **Earnings** | ** ** | **Equity** | ** ** |
| ** **                                                           | ** ** | **(in thousands)**  | ** ** |
| BALANCE,  DECEMBER 31, 2006                                          |       | —                   |       | $                     | —     |                    | 17,442     |         | $          | 174                           |       | $ | 141,685 |   | $ | 14,193 |   | $ | 156,052 |   |
| Issuance  of preferred stock                                         |       | 2,875                    |       | 29                    |       | —                  |       | —       |       | 143,721                       |       | — |   | 143,750 |   |
| Costs  of preferred stock offering                                   |       | —                   |       | —                |       | —                  |       | —       |       | (5,293                        | )          | — |   | (5,293 | ) |
| Issuance  of common stock                                            |       | —                   |       | —                |       | 10,925                  |       | 109          |       | 144,647                       |       | — |   | 144,756 |   |
| Costs  of common stock offering                                      |       | —                   |       | —                |       | —                  |       | —       |       | (6,642                        | )          | — |   | (6,642 | ) |
| Issuance  of common stock                                            |       | —                   |       | —                |       | 76                      |       | 1            |       | 86                            |       | — |   | 87 |   |
| Stock  based compensation costs                                      |       | —                   |       | —                |       | —                  |       | —       |       | 699                           |       | — |   | 699 |   |
| Tax  benefit associated with exercise of non-qualified stock options |       | —                   |       | —                |       | —                  |       | —       |       | (9                            | )          | — |   | (9 | ) |
| Adoption  of FIN 48                                                  |       | —                   |       | —                |       | —                  |       | —       |       | —                        |       | (534 | ) | (534 | ) |
| Preferred  stock dividends                                           |       | —                   |       | —                |       | —                  |       | —       |       | —                        |       | (1,381 | ) | (1,381 | ) |
| Net  loss                                                            |       | —                   |       | —                |       | —                  |       | —       |       | —                        |       | (5,768 | ) | (5,768 | ) |
| BALANCE,  MARCH 31, 2007                                             |       | 2,875                    |       | $                     | 29         |                    | 28,443     |         | $          | 284                           |       | $ | 418,894 |   | $ | 6,510 |   | $ | 425,717 |   |
|                                                                 |       |                     |       |                  |       |                    |       |         |       |                          |       |   |   |   |   |

 

See accompanying notes to consolidated financialstatements.

7

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**EDGE PETROLEUM CORPORATION**

**NOTES TO THE CONSOLIDATED FINANCIALSTATEMENTS**

**1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

Thefinancial statements included herein have been prepared by Edge PetroleumCorporation, a Delaware corporation (“we”, “our”, “us” or the “Company”),without audit pursuant to the rules and regulations of the Securities andExchange Commission (“SEC”), and reflect all adjustments which are, in theopinion of management, necessary to present a fair statement of the results forthe interim periods on a basis consistent with the annual audited consolidatedfinancial statements.  All suchadjustments are of a normal recurring nature. The results of operations for the interim periods are not necessarilyindicative of the results to be expected for an entire year.  Certain information, accounting policies andfootnote disclosures normally included in financial statements prepared inaccordance with accounting principles generally accepted in the United Statesof America have been omitted pursuant to such rules and regulations, althoughwe believe that the disclosures are adequate to make the information presentednot misleading. These financial statements should be read in conjunction withour audited consolidated financial statements included in our Annual Report onForm 10-K for the year ended December 31, 2006.

***Oil and Natural Gas Properties*****-**Investments in oil and natural gasproperties are accounted for using the full-cost method of accounting. Theaccounting for our business is subject to special accounting rules that areunique to the oil and gas industry. There are two allowable methods of accounting for oil and gas businessactivities:  the successful-efforts methodand the full-cost method. There are several significant differences betweenthese methods. Among these differences is that, under the successful-effortsmethod, costs such as geological and geophysical (“G&G”), exploratory dryholes and delay rentals are expensed as incurred whereas under the full-costmethod these types of charges are capitalized to their respective full-costpool. In accordance with the full-cost method of accounting, all costsassociated with the exploration, development and acquisition of oil and naturalgas properties, including salaries, benefits and other internal costs directlyattributable to these activities are capitalized within a cost center.  The Company’s oil and natural gas propertiesare located within the United States of America, which constitutes one costcenter. The Company also capitalizes a portion of interest expense on borrowedfunds.

In the measurementof impairment of oil and gas properties, the successful-efforts method followsthe guidance provided in Statement of Financial Accounting Standards (“SFAS”)No. 144, *Accounting for the Impairment orDisposal of Long-Lived Assets*, where the first measurement forimpairment is to compare the net book value of the related asset to itsundiscounted future cash flows using commodity prices consistent withmanagement expectations. The full-cost method follows guidance provided in SECRegulation S-X Rule 4-10, where impairment is determined by the “ceiling test,”whereby to the extent that such capitalized costs subject to amortization inthe full-cost pool (net of accumulated depletion, depreciation andamortization, and related tax effects) exceed the present value (using a 10%discount rate) of estimated future net after-tax cash flows from proved oil andnatural gas reserves, such excess costs are charged to expense.  Once incurred, an impairment of oil andnatural gas properties is not reversible at a later date.  A ceiling test impairment could result in asignificant loss for a reporting period; however, future depletion expensewould be correspondingly reduced. Impairment of oil and natural gas propertiesis assessed on a quarterly basis in conjunction with the Company’s quarterlyand annual SEC filings.  No ceiling testimpairment was required during the quarters ended March 31, 2007 or 2006.

In accordance withSEC Staff Accounting Bulletin (“SAB”) No. 103, *Updateof Codification of Staff Accounting Bulletins*, derivativeinstruments qualifying as cash flow hedges are to be included in thecomputation of limitation on capitalized costs. As of March 31, 2007, the Company was not applying cash flow hedgeaccounting to any derivative contracts (see Note 8), therefore the ceiling testat March 31, 2007 was not impacted by the value of our derivatives.

Oil and naturalgas properties are amortized based on a unit-of-production method usingestimates of proved reserve quantities. Oil and natural gas liquids (“NGL”s)are converted to gas equivalent basis (“Mcfe”) at the rate of one barrel equalssix Mcf. In accordance with SAB No. 106, *Interactionof Statement 143 and the Full Cost Rules,*the amortizable baseincludes estimated future development and dismantlement costs, and restorationand 

8

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abandonment costs, net ofestimated salvage values. Investments in unproved properties are not amortizeduntil proved reserves associated with the prospects can be determined or untilimpairment occurs. Unproved properties are evaluated quarterly, and as needed,for impairment on a property-by-property basis. If the results of an assessmentindicate that an unproved property is impaired, the amount of impairment is addedto the proved oil and natural gas property costs to be amortized. Oil andnatural gas properties included costs of $88.5 million and $57.6 million atMarch 31, 2007 and December 31, 2006, respectively, related to unprovedproperty, which were excluded from capitalized costs being amortized.

Sales of provedand unproved properties are accounted for as adjustments of capitalized costswith no gain or loss recognized, unless such adjustments would significantlyalter the relationship between capitalized costs and proved reserves.

***Accounts Receivable and Allowancefor Doubtful Accounts*** - The Company routinely assesses therecoverability of all material trade and other receivables to determine ourability to collect the receivables in full. Accounts Receivable, Tradeincludes an “allowance” for doubtful accounts of $0.5 million at March 31, 2007and December 31, 2006.  AccountsReceivable, Joint Interest Owners includes “allowances” for doubtful accountsof $3,200 at both March 31, 2007 and December 31, 2006.

***Inventories -***Inventoriesconsist principally of tubular goods and production equipment for wells andfacilities. They are stated at the lower of weighted-average cost or market andare included in Other Current Assets on the consolidated balance sheet.

***Asset Retirement Obligations***-******The Companyrecords a liability for legal obligations associated with the retirement oftangible long-lived assets in the period in which they are incurred inaccordance with SFAS No. 143, *Accounting forAsset Retirement Obligations.* Under SFAS No. 143, when liabilitiesfor dismantlement and abandonment costs, excluding salvage values, areinitially recorded, the carrying amount of the related oil and gas propertiesis increased. Accretion of the liability is recognized each period using theinterest method of allocation, and the capitalized cost is depleted over theuseful life of the related asset. The changes to the Asset RetirementObligations (“ARO”) for oil and natural gas properties and related equipmentduring the three months ended March 31, 2007 and 2006 are as follows:

 

|                                             | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                  | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                                  | ** ** | **(in thousands)**                              | ** ** |
| ARO, Beginning  of Period                   |       | $                                                    | 3,371      |   | $ | 2,767 |   |
| Liabilities  incurred in the current period |       | 910                                                  |       | 148 |   |
| Liabilities  settled in the current period  |       | (17                                                  | )          | (39 | ) |
| Accretion  expense                          |       | 64                                                   |       | 44 |   |
| Revisions                                   |       | —                                               |       | — |   |
| ARO, End of  Period                         |       | $                                                    | 4,328      |   | $ | 2,920 |   |
| Current Portion                             |       | $                                                    | 332        |   | $ | 195 |   |
| Long-Term Portion                           |       | $                                                    | 3,996      |   | $ | 2,725 |   |

 

Duringthe three months ended March 31, 2007, ARO liabilities incurred include 173 newwell obligations, including the newly acquired properties from Smith ProductionInc. (see Note 9) and liabilities settled include two wells that were plugged.

***Share-Based Compensation***- The Company accounts for share-basedcompensation in accordance with the provisions of SFAS No. 123R, *Share-Based Payment,* which requires that the compensationcost relating to share-based payment transactions be recognized in financialstatements. Share-based compensation for the three months ended March 31, 2007was approximately $698,700, of which $549,300 is included in general andadministrative expenses (“G&A”) and $149,400 is capitalized to oil andnatural gas properties.  Share-basedcompensation for the three months ended March 31, 2006 was approximately$407,200, of which $302,200 was included in G&A and $105,000 wascapitalized to oil and natural gas properties.

9

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Duringthe three months ended March 31, 2007, 38,100 restricted stock units (“RSUs”)were granted. At March 31, 2007, 462,213 RSUs were outstanding, all of whichare classified as equity instruments.  Nooptions were granted during the three months ended March 31, 2007 and at periodend, 650,700 options were outstanding.

***Income Taxes -*** Effective January 1, 2007, theCompany adopted FASB Interpretation No. 48 *Accounting for Uncertaintyin Income Taxes (an interpretation of FASB Statement No. 109)*(“FIN48”).  This interpretation clarified theaccounting for uncertainty in income taxes recognized in the financialstatements by prescribing a recognition threshold and measurement attribute fora tax position taken or expected to be take in a tax return.  FIN 48 also provides guidance onde-recognitions, classification, interest and penalties, accounting in interimperiods, disclosure and transition.  TheCompany also adopted FASB Staff Position No. FIN 48-1, *Definitionof Settlement in FASB Interpretation No. 48* (“FSP FIN 48-1”) as ofJanuary 1, 2007.  FSP FIN 48-1 providesthat a company’s tax position will be considered settled if the taxingauthority has competed its examination, the company does not plan to appeal,and it is remote that the taxing authority would reexamine the tax position inthe future (see Note 6).

***AccountingPronouncements -*** In February 2007, the FASB issuedSFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities — Including an Amendment ofFAS Statement No. 115*. SFAS No. 159 givescompanies the option of applying at specified election dates fair valueaccounting to certain financial instruments and other items that are notcurrently required to be measured at fair value. If a company chooses to recordeligible items at fair value, the company must report unrealized gains andlosses on those items in earnings at each subsequent reporting date.SFAS No. 159 also prescribes presentation and disclosure requirementsfor assets and liabilities that are measured at fair value pursuant to thisstandard and pursuant to the guidance in SFAS No. 133, *Accounting for Derivative Instruments and Hedging Activities (asamended)*. SFAS No. 159 will be effective for fiscal year2008. As the provisions of SFAS No. 159 are applied prospectively,the impact on the Company will depend on the instruments selected for fairvalue measurement at the time of implementation.

In September 2006, the FASB issued SFAS No. 157, *Fair Value Measurements,* which provides guidance for usingfair value to measure assets and liabilities. The standard also gives expanded information about the extent to whichcompanies measure assets and liabilities at fair value, the information used tomeasure fair value, and the effect of fair value measurements on earnings. SFASNo. 157 does not expand the use of fair value in any new circumstances.  SFAS No. 157 establishes a fair value hierarchythat prioritizes the information used to develop fair value assumptions.  SFAS No. 157 is effective for financialstatements issued for fiscal years beginning after November 15, 2007.  Early adoption is encouraged.  The Company is currently assessing theimpact, if any, that SFAS No. 157 will have on its financial statements.

***Reclassifications***- Certainreclassifications of prior period statements have been made to conform tocurrent reporting practices.

**2.     LONG TERM DEBT**

OnJanuary 30, 2007, the Company terminated its Third Amended and Restated CreditAgreement (the “Prior Credit Facility”), which it had originally entered intoin March 2004 (effective December 31, 2003). The Prior Credit Facility wasscheduled to mature on March 31, 2008 and had a borrowing base of $140.0million, of which $129.0 million was outstanding as of January 30, 2007.

On January 30, 2007, theCompany also entered into a Fourth Amended and Restated Credit Agreement (the “Agreement”)for a new Revolving Credit Facility with Union Bank of California (“UBOC”), asadministrative agent and issuing lender, and the other lenders party thereto.Pursuant  to the Agreement, UBOC will act as the administrative agent fora senior, first lien secured borrowing base revolving credit facility (the “RevolvingFacility”) in favor of the Company and certain of its wholly-owned subsidiariesin an amount equal to $750 million, of which only $320 million is availableunder the borrowing base established at the closing. The Revolving Facility hasa letter of credit sub-limit of $20 million. In connection with the RevolvingFacility, the Company paid the lenders fees in an amount equal to 1.00% of theinitial borrowing base established under the Revolving Facility, or $3.2million, on January 31, 2007.  The Company also paid approximately $0.5million for certain other administrative fees, legal fees, fronting fees andwork fees in connection with the Revolving Facility. The aggregate 

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fees of $3.7 million (ofwhich $0.1 million was paid in December 2006) were recorded to deferred loancosts and are being amortized over the maturity of the Revolving Facility.

TheRevolving Facility matures on January 31, 2011 and bears interest at LIBOR plusan applicable margin ranging from 1.25% to 2.5% or Prime plus a margin of up to0.25%, with an unused commitment fee ranging from 0.50% to 0.25%. At March 31,2007 the interest rates applied to the Company’s outstanding Prime and LIBORborrowings were 8.25% and 7.10%, respectively. As of March 31, 2007, $240.0million in total borrowings were outstanding under the Revolving Facility. TheCompany’s available borrowing capacity under the Revolving Facility was $80.0million at March 31, 2007.  The borrowingbase is currently being redetermined by the lender and the Company expects tobe notified of any changes during the second quarter of 2007.

TheRevolving Facility is secured by substantially all of our assets. The RevolvingFacility provides for certain restrictions, including, but not limited to,limitations on additional borrowings, sales of oil and natural gas propertiesor other collateral, and engaging in merger or consolidation transactions. TheRevolving Facility restricts dividends and certain distributions of cash orproperties and certain liens and also contains financial covenants including,without limitation, the following:

·                  An EBITDAXto interest expense ratio requires that as of the last day of each fiscalquarter the ratio of (a) Edge’s consolidated EBITDAX (defined as EBITDA plussimilar non-cash items and exploration and abandonment expenses for suchperiod) to (b) Edge’s consolidated interest expense, not be less than 2.5 to1.0, calculated on a cumulative quarterly basis for the first 12 months afterthe closing of the Revolving Facility and then on a rolling four quarter basis.

·                  A currentratio requires that as of the last day of each fiscal quarter the ratio of Edge’sconsolidated current assets to Edge’s consolidated current liabilities, asdefined in the Revolving Facility, be at least 1.0 to 1.0.

·                  A maximumleverage ratio requires that as of the last day of each fiscal quarter theratio of (a) Total Indebtedness (as defined in the Revolving Facility) to (b)an amount equal to consolidated EBITDAX be not greater than 3.0 to 1.0,calculated on a cumulative quarterly basis for the first 12 months after theclosing of the Revolving Facility and then on a rolling four quarter basis.

ConsolidatedEBITDAX is a component of negotiated covenants with our lender and is discussedhere as part of the Company’s disclosure of its covenant obligations. TheRevolving Facility includes other covenants and events of default that arecustomary for similar facilities.

InDecember 2006, UBOC provided the Company a commitment letter for a $250 millionsenior, second lien secured bridge loan facility (the “Bridge Loan Facility”).The Bridge Loan Facility, along with the Revolving Facility, were intended toreplace the Company’s Prior Credit Facility and to fund the closing of theSmith Acquisition (see Note 9) if the Company was unable to complete one orboth of its intended public offerings. Due to the successful completion of thepublic offering of common stock and 5.75% Series A cumulative convertibleperpetual preferred stock on January 30, 2007, the Company did not enter intothe Bridge Loan Facility. The Company paid an amount equal to 0.50% of thecommitment under the Bridge Loan Facility, or $1.3 million, on January 31,2007, which is included in interest expense.

**3.     SHELF REGISTRATION STATEMENT**

During the secondquarter 2005, the Company filed a registration statement with the SEC whichregistered offerings of up to $390 million of any combination of debtsecurities, preferred stock, common stock or warrants for debt securities orequity securities of the Company. Net proceeds, terms and pricing of theoffering of securities issued under the shelf registration statement will bedetermined at the time of the offerings. The shelf registration statement doesnot provide assurance that the Company will or could sell any such securities.The Company’s ability to utilize the shelf registration statement for thepurpose of issuing, from time to time, any combination of debt securities,preferred stock, common stock or warrants for debt securities or equitysecurities will depend upon, 

11

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among other things,market conditions and the existence of investors who wish to purchase theCompany’s securities at prices acceptable to the Company.

In January 2007, theCompany completed an offering of 10.925 million shares of its common stock and2.875 million shares of 5.75% Series A cumulative convertible perpetualpreferred stock. The shares were offered to the public at a price of $13.25 pershare of common stock and $50.00 per share of preferred stock. The Companyreceived net proceeds of approximately $276.6 million from the offerings($138.1 million from the common offering and $138.5 from the preferredoffering), after deducting underwriting discounts and commissions and theexpenses of the offerings. As a result of the offerings, the Company hadapproximately $101.5 million remaining available under its 2005 shelfregistration statement as of March 31, 2007.

|                          | ** ** | **Common Stock  Offering**                            | ** ** | **Preferred Stock  Offering** | ** ** |
|--------------------------|------------|------------------------------------------------------------|------------|------------------------------------|------------|
| ** **               | ** ** | **(in thousands, except issue price)** | ** ** |
| Gross Proceeds           |       | $                                                          | 144,756    |                               | $          | 143,750 |   |
| Underwriting  discount   |       | (6,152                                                     | )          | (4,672                             | )          |
| Other costs of  offering |       | (491                                                       | )          | (621                               | )          |
| Net Proceeds             |       | $                                                          | 138,113    |                               | $          | 138,457 |   |
|                     |       |                                                       |       |                               |       |
| Shares issued            |       | 10,925                                                     |       | 2,875                              |       |
| Issue price              |       | $                                                          | 13.25      |                               | $          | 50.00 |   |

 

**4.     PREFERRED STOCK**

The Company completedthe public offering of 2,875,000 shares of its 5.75% Series A cumulativeconvertible perpetual preferred stock (“Convertible Preferred Stock”) inJanuary 2007.

*Dividends*.  The Convertible Preferred Stock accumulatesdividends at a rate of $2.875 for each share of Convertible Preferred Stock peryear. Dividends are cumulative from the date of first issuance and, to theextent payment of dividends is not prohibited by the Company’s debt agreements,assets are legally available to pay dividends and the board of directors or anauthorized committee of our board declares a dividend payable, the Company willpay dividends in cash, every quarter. The first payment was made on April 15,2007.

Nodividends or other distributions (other than a dividend payable solely inshares of a like or junior ranking) may be paid or set apart for payment uponany shares ranking equally with the Convertible Preferred Stock (“parity shares”)or shares ranking junior to the Convertible Preferred Stock (“junior shares”),nor may any parity shares or junior shares be redeemed or acquired for anyconsideration by the Company (except by conversion into or exchange for sharesof a like or junior ranking) unless all accumulated and unpaid dividends havebeen paid or funds therefore have been set apart on the Convertible PreferredStock and any parity shares.

*Liquidationpreference*. In the event of the Company’s voluntary or involuntary liquidation,winding-up or dissolution, each holder of Convertible Preferred Stock will beentitled to receive and to be paid out of the Company’s assets available fordistribution to our stockholders, before any payment or distribution is made toholders of junior stock (including common stock), but after any distribution onany of our indebtedness or senior stock, a liquidation preference in the amountof $50.00 per share of the Convertible Preferred Stock, plus accumulated andunpaid dividends on the shares to the date fixed for liquidation, winding-up ordissolution.

*Ranking*.  Our Convertible Preferred Stock ranks:

 

12

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·                  seniorto all of the shares of common stock and to all of the Company’s other capitalstock issued in the future unless the terms of such capital stock expresslyprovide that it ranks senior to, or on a parity with, shares of the ConvertiblePreferred Stock;

·                  ona parity with all of the Company’s other capital stock issued in the future theterms of which expressly provide that it will rank on a parity with the sharesof the Convertible Preferred Stock; and

·                  juniorto all of the Company’s existing and future debt obligations and to all sharesof its capital stock issued in the future, the terms of which expressly providethat such shares will rank senior to the shares of the Convertible PreferredStock.

*Mandatory*conversion.**   Onor after January 20, 2010, the Company may, at its option, cause shares of itsConvertible Preferred Stock to be automatically converted at the applicableconversion rate, but only if the closing sale price of our common stock for 20trading days within a period of 30 consecutive trading days ending on thetrading day immediately preceding the date we give the conversion notice equalsor exceeds 130% of the conversion price in effect on each such trading day.

*Optional*redemption.**   Iffewer than 15% of the shares of Convertible Preferred Stock issued in theConvertible Preferred Stock offering (including any additional shares issuedpursuant to the underwriters’ over-allotment option) are outstanding, theCompany may, at any time on or after January 20, 2010, at its option,redeem for cash all such Convertible Preferred Stock at a redemption priceequal to the liquidation preference of $50.00 plus any accrued and unpaiddividends, if any, on a share of Convertible Preferred Stock to, but excluding,the redemption date, for each share of Convertible Preferred Stock.

*Conversion*rights.**   Eachshare of Convertible Preferred Stock may be converted at any time, at theoption of the holder, into approximately 3.0193 shares of the Company’s commonstock (which is based on an initial conversion price of $16.56 per share ofcommon stock, subject to adjustment) plus cash in lieu of fractional shares,subject to our right to settle all or a portion of any such conversion in cashor shares of our common stock. If the Company elects to settle all or anyportion of its conversion obligation in cash, the conversion value and thenumber of shares of its common stock the Company will deliver upon conversion(if any) will be based upon a 20 trading day averaging period.

Upon any conversion, the holder will not receive anycash payment representing accumulated and unpaid dividends on the ConvertiblePreferred Stock, whether or not in arrears, except in limited circumstances.The conversion rate is equal to $50.00 divided by the conversion price at thetime. The conversion price is subject to adjustment upon the occurrence ofcertain events. The conversion price on the conversion date and the number ofshares of our common stock, as applicable, to be delivered upon conversion maybe adjusted if certain events occur.

*Purchase*upon fundamental change.**   Ifthe Company becomes subject to a fundamental change (as defined herein), eachholder of shares of Convertible Preferred Stock will have the right to requirethe Company to purchase any or all of its shares at a purchase price equal to100% of the liquidation preference, plus accumulated and unpaid dividends, tothe date of the purchase. The Company will have the option to pay the purchaseprice in cash, shares of common stock or a combination of cash and shares. TheCompany’s ability to purchase all or a portion of the Convertible PreferredStock for cash is subject to its obligation to repay or repurchase anyoutstanding debt required to be repaid or repurchased in connection with afundamental change and to any contractual restrictions then contained in ourdebt.

*Conversion*in connection with a fundamental change.**   Ifa holder elects to convert its shares of the Convertible Preferred Stock inconnection with certain fundamental changes, we will in certain circumstancesincrease the conversion rate for such Convertible Preferred Stock. Upon aconversion in connection with a fundamental change, the holder will be entitledto receive a cash payment for all accumulated and unpaid dividends.

A “fundamental change” will be deemed to have occurredupon the occurrence of any of the following:

1. a “person” or “group”subject to specified exceptions, disclosing that the person or group has becomethe direct or indirect ultimate “beneficial owner” of our common equityrepresenting more than 50% of the 

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voting power of ourcommon equity other than a filing with a disclosure relating to a transactionwhich complies with the provision in subsection 2 below;

2. consummation of anyshare exchange, consolidation or merger of us pursuant to which our commonstock will be converted into cash, securities or other property or any sale,lease or other transfer in one transaction or a series of transactions of allor substantially all of the consolidated assets of us and our subsidiaries,taken as a whole, to any person other than one of our subsidiaries; provided,however, that a transaction where the holders of more than 50% of all classesof our common equity immediately prior to the transaction own, directly orindirectly, more than 50% of all classes of common equity of the continuing orsurviving corporation or transferee immediately after the event shall not be afundamental change;

3. we are liquidated ordissolved or holders of our capital stock approve any plan or proposal for ourliquidation or dissolution; or

4. our common stock isneither listed on a national securities exchange nor listed nor approved forquotation on an over-the-counter market in the United States.

However, a fundamental change will not be deemed tohave occurred in the case of a share exchange, merger or consolidation, or inan exchange offer having the result described in subsection 1 above, if 90% ormore of the consideration in the aggregate paid for common stock (and excludingcash payments for fractional shares and cash payments pursuant to dissenters’appraisal rights) in the share exchange, merger or consolidation or exchangeoffer consists of common stock of a United States company traded on a nationalsecurities exchange (or which will be so traded or quoted when issued orexchanged in connection with such transaction).

*Voting*rights.**   Ifthe Company fails to pay dividends for six quarterly dividend periods (whetheror not consecutive) or if the company fails to pay the purchase price on thepurchase date for the Convertible Preferred Stock following a fundamentalchange, holders of the Convertible Preferred Stock will have voting rights toelect two directors to the board.

In addition, the Company may generally not, withoutthe approval of the holders of at least 66 2/3% of the shares of theConvertible Preferred Stock then outstanding:

·                  amendthe restated certificate of incorporation, as amended, by merger or otherwise,if the amendment would alter or change the powers, preferences, privileges orrights of the holders of shares of the Convertible Preferred Stock so as toadversely affect them;

·                  issue,authorize or increase the authorized amount of, or issue or authorize anyobligation or security convertible into or evidencing a right to purchase, anysenior stock; or

·                  reclassifyany of our authorized stock into any senior stock of any class, or anyobligation or security convertible into or evidencing a right to purchase anysenior stock.

**5. EARNINGS PERSHARE**

The Company accounts for earnings per share inaccordance with SFAS No. 128, *Earnings perShare*, which establishes the requirements for presenting earningsper share (“EPS”).  SFAS No. 128 requiresthe presentation of “basic” and “diluted” EPS on the face of the statement ofoperations.  Basic EPS amounts arecalculated using the weighted average number of common shares outstandingduring each period.  Diluted EPS assumesthe exercise of all stock options and warrants having exercise prices less thanthe average market price of the common stock during the periods, using thetreasury stock method.

Diluted EPS alsoincludes the effect of convertible securities by application of the “if-converted”method.  Under this method, if an entityhas convertible preferred stock outstanding, the preferred dividends applicableto the convertible preferred stock are added back to the numerator.  The convertible preferred stock is assumed tohave been converted at the beginning of the period (or at time of issuance, iflater) and the resulting common shares are 

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includedin the denominator of the EPS calculation. In applying the if-converted method, conversion is not assumed forpurposes of computing diluted EPS if the effect would be anti-dilutive. Thefollowing table presents the computation of EPS:
| ** **                                                                   | ** ** | **Three Months Ended March 31, 2007**        | ** ** | **Three Months Ended March 31, 2006** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **Income (Loss)   (Numerator)**                             | ** ** | **Shares   (Denominator)**                                | ** ** | **Per   Share   Amount** | ** ** | **Income   (Numerator)** | ** ** | **Shares   (Denominator)** | ** ** | **Per   Share   Amount** | ** ** |
| ** **                                                                   | ** ** | **(in thousands, except per share amounts)** | ** ** |
| Net income  (loss)                                                           |       | $                                                                     | (5,768     | )                                                              |       |   |   |   | $ | 6,892 |   |   |   |   |   |
| Less: Preferred  stock dividends                                             |       | (1,381                                                                | )          |                                                           |       |   |   | — |   |   |   |   |   |
| ** **                                                                   |       |                                                                  |       |                                                           |       |   |   |   |   |   |   |   |   |
| **Basic  EPS**                                                               |       |                                                                  |       |                                                           |       |   |   |   |   |   |   |   |   |
| Net income  (loss) available to common stockholders                          |       | (7,149                                                                | )          | 24,867                                                         |       | $ | (0.29 | ) | 6,892 |   | 17,239 |   | $ | 0.40 |   |
| Effect of  dilutive securities:                                              |       |                                                                  |       |                                                           |       |   |   |   |   |   |   |   |   |
| Restricted stock  units                                                      |       |                                                                  |       | —                                                         |       |   |   |   |   | 221 |   |   |   |
| Common stock  options                                                        |       |                                                                  |       | —                                                         |       |   |   |   |   | 516 |   |   |   |
| Convertible  preferred stock                                                 |       | —                                                                |       | —                                                         |       |   |   | — |   | — |   |   |   |
| **Diluted  EPS**                                                             |       |                                                                  |       |                                                           |       |   |   |   |   |   |   |   |   |
| Net income (loss)  available to common stockholders plus assumed conversions |       | $                                                                     | (5,768     | )                                                              | 24,867     |   | $ | (0.29 | ) | $ | 6,892 |   | 17,976 |   | $ | 0.38 |   |

 

When a loss from continuing operations exists, as inthe three months ended March 31, 2007, potential common shares shall beexcluded in the computation of diluted EPS because it would result in ananti-dilutive effect on per share amounts. During the three months ended March31, 2007, 9.0 million shares of stock options and if-converted common stockwere excluded from the diluted EPS calculation because their inclusion wouldhave been anti-dilutive.

**6. INCOME TAXES**

The Company accounts for income taxes under theprovisions of SFAS No. 109, *Accounting forIncome Taxes*, which provides for an asset and liability approach inaccounting for income taxes.  Under thisapproach, deferred tax assets and liabilities are recognized based onanticipated future tax consequences, using currently enacted tax laws,attributable to temporary differences between the carrying amounts of assetsand liabilities for financial reporting purposes and the amounts calculated forincome tax purposes.

The Company currently estimates that its effective taxrate for the year ending December 31, 2007 will be approximately 34.95%.  An income tax benefit of $2.9 million (34.95%of pre-tax loss) and a provision for income taxes of $3.7 million (35.15% ofpre-tax income) were reported for the three months ended March 31, 2007 and2006, respectively. Our income tax provisions are primarily non-cash as we haveNOL carryforwards available that were generated from drilling activity.  Currently the Company anticipates that itwill pay only federal alternative minimum tax in 2007. The Company was requiredto pay federal alternative minimum taxes of $42,900 in the first quarter of2006.

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In June 2006, the FASB issued FIN 48, *Accounting for Uncertainty in Income Taxes, an Interpretation of FASBStatement No. 109*, which clarifies the accounting foruncertainty in income taxes recognized in accordance withSFAS No. 109, *Accounting for IncomeTaxes*. FIN 48 prescribes a benefit recognition model with atwo-step approach, a more-likely-than-not recognition criterion and ameasurement attribute that measures the position as the largest amount of taxbenefit that is greater than 50% likely of being ultimately realized uponultimate settlement. If it is not more likely than not that the benefit will besustained on its technical merits, no benefit will be recorded. FIN 48also requires that the amount of interest expense to be recognized related touncertain tax positions be computed by applying the applicable statutory rateof interest to the difference between the tax position recognized in accordancewith FIN 48 and the amount previously taken or expected to be taken in atax return. The Company also adopted FSP FIN 48-1 as of January 1, 2007, whichprovides that a company’s tax position will be considered settled if the taxingauthority has competed its examination, the company does not plan to appeal,and it is remote that the taxing authority would reexamine the tax position inthe future. At January 1, 2007, the Company recorded the cumulative effect ofthe change in accounting principle as a $534,035 decrease in the openingbalance of retained earnings. The Company had no reserves prior to adoption atJanuary 1, 2007. The Company recognizes interest and penalties related tounrecognized tax benefits in tax expense. However, the Company has accrued nointerest or penalties at March 31, 2007.

**7. SUPPLEMENTALDISCLOSURE OF CASH FLOW INFORMATION AND NON-CASH INVESTING AND FINANCINGACTIVITIES**

The Company considers all highly liquid debtinstruments purchased with an original maturity of three months or less to becash equivalents. A summary of non-cash investing and financing activities ispresented below:

| Description                                                                                            | ** ** | **Number of   Shares   Issued** | ** ** | **Fair Market   Value** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                             | ** ** | **(in thousands)**                        | ** ** |
| **Three  months ended March 31, 2007:**                                                                |       |                                           |       |                              |       |
| Shares issued to satisfy restricted stock grants                                                       |       | 70                                             |       | $                                 | 1,416      |   |
| Shares issued to fund the Company’s matching  contribution   under the Company’s 401(k) plan |       | 6                                              |       | $                                 | 87         |   |
| **Three  months ended March 31, 2006:**                                                                |       |                                           |       |                              |       |
| Shares issued to satisfy restricted stock grants                                                       |       | 55                                             |       | $                                 | 660        |   |
| Shares issued to  fund the Company’s matching contribution   under the Company’s 401(k) plan |       | 1                                              |       | $                                 | 36         |   |

 

For the threemonths ended March 31, 2007 and 2006, the non-cash portion of Asset RetirementCosts was $0.9 million and $0.1 million, respectively. A supplementaldisclosure of cash flow information is presented below:

|                                           | ** ** | **For the Three Months Ended   March 31,** | ** ** |
|-------------------------------------------|------------|--------------------------------------------------------------------------|------------|
| ** **                                | ** ** | **2007**                                                                 | ** ** | **2006** | ** ** |
| ** **                                | ** ** | **(in thousands)**                                                  | ** ** |
| Cash paid during  the period for:         |       |                                                                     |       |   |   |
| Interest                                  |       | $                                                                        | 551        |   | $ | 702 |   |
| Federal alternative  minimum tax payments |       | —                                                                   |       | 43 |   |
|                                           |            |                                                                          |            |  |  |  |  |

 

**8. HEDGING ANDDERIVATIVE ACTIVITIES**

Due to the volatility of oil and natural gas prices,the Company periodically enters into price-risk management transactions (e.g.,swaps, collars and floors) for a portion of its oil and natural gas productionto achieve a more predictable cash flow, as well as to reduce exposure fromcommodity price fluctuations.  While theuse of these arrangements limits the Company’s ability to benefit fromincreases in the price of oil and natural gas, it 

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also reduces the Company’spotential exposure to adverse price movements. The Company’s arrangements, to the extent it enters into any, apply toonly a portion of its production and provide only partial price protectionagainst declines in oil and natural gas prices. None of these instruments areused for trading purposes. The use of derivative instruments involves the riskthat the counterparties to such instruments will be unable to meet thefinancial obligations of such contracts. On a quarterly basis, the Company’s management reviews all of theCompany’s price-risk management policies, including volumes, types ofinstruments and counterparties. These policies are implemented by managementthrough the execution of trades by the Chief Financial Officer afterconsultation and concurrence by the President and Chairman of the Board.  The Board of Directors monitors the Company’sprice-risk management policies and trades on a monthly basis.

All of these price-risk management transactions areconsidered derivative instruments and accounted for in accordance with SFAS No.133 (as amended)*.* These derivative instruments areintended to hedge the Company’s price risk and may be considered hedges foreconomic purposes, but certain of these transactions may not qualify for cashflow hedge accounting. All derivative instrument contracts are recorded on thebalance sheet at fair value and the cash flows resulting from settlement ofthese derivative transactions are classified in operating activities on thestatement of cash flows. For those derivatives in which mark-to-marketaccounting treatment is applied, the changes in fair value are not deferredthrough other comprehensive income on the balance sheet. Rather they areimmediately recorded in total revenue on the statement of operations. For thosederivatives that are designated and qualify for cash flow hedge accounting, theeffective portion of the changes in the fair value of the contracts is recordedin other comprehensive income on the balance sheet and the ineffective portionof the changes in the fair value of the contracts is recorded in total revenueon the statement of operations as they occur. When the hedged production issold, the realized gains and losses on the contracts are removed from othercomprehensive income and recorded in revenue. While the contract isoutstanding, the unrealized and ineffective gain or loss may increase ordecrease until settlement of the contract depending on the fair value at themeasurement dates. The Company evaluates the terms of new contracts enteredinto to determine whether cash flow hedge accounting treatment ormark-to-market accounting treatment will be applied. The Company has appliedmark-to-market accounting treatment to all outstanding contracts since January1, 2006.

The followingtable reflects the realized and unrealized gains and losses included in revenueon the statement of operations:

|                                                         | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                              | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                                              | ** ** | **(in thousands)**                              | ** ** |
| Natural gas  derivative realized settlements            |       | $                                                    | 569        |   | $ | 319 |   |
| Crude oil derivative  realized settlements              |       | 843                                                  |       | — |   |
| Natural gas  derivative unrealized change in fair value |       | (15,472                                              | )          | 2,010 |   |
| Crude oil  derivative unrealized change in fair value   |       | (2,271                                               | )          | (230 | ) |
| Gain (loss) on  derivatives                             |       | $                                                    | (16,331    | ) | $ | 2,099 |   |

 

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The fair value of outstanding derivative contracts atMarch 31, 2007 and December 31, 2006 reflected on the balance sheet were asfollows:
| ** **                    | ** ** | ** **      | ** ** | ** **    | ** ** | ** ** | ** ** | ** **        | ** **   | ** **       | ** **   | **Fair Value of Outstanding  Derivative Contracts as of** | ** **   |
|-------------------------------|------------|-----------------|------------|---------------|------------|------------|------------|-------------------|--------------|------------------|--------------|-----------------------------------------------------------------------------------------|--------------|
| **Transaction**               | ** ** | **Transaction** | ** ** | ** **    | ** ** | ** ** | ** ** | **Price**         | ** **   | **Volumes**      | ** **   | **March 31,**                                                                      | ** **   | **December 31,** | ** ** |
| **Date**                      | ** ** | **Type**        | ** ** | **Beginning** | ** ** | **Ending** | ** ** | **Per Unit** | ** **   | **Per Day** | ** **   | **2007**                                                                                | ** **   | **2006** | ** ** |
| ** **                    | ** ** | ** **      | ** ** | ** **    | ** ** | ** ** | ** ** | ** **        | ** **   | ** **       | *** *** | **(in thousands)**                                                                 | *** *** |
| ***Natural  Gas (1)******:*** |       |            |       |          | * *   | * *   | * *   | * *          | * *     | * *         | * *     | * *                                                                                | * *     | * * | * * |
| 08/06                         |       | Collar          | (3)        | 01/01/2007    |       | 12/31/2007 |       | $                 | 7.50-$11.50  |             | 5,000 MMbtu  |                                                                                    | $            | — |   | $ | 2,301 |   |
| 08/06                         |       | Collar          | (3)        | 01/01/2007    |       | 12/31/2007 |       | $                 | 7.50-$12.00  |             | 5,000 MMbtu  |                                                                                    | —       |   | 2,385 |   |
| 01/07                         |       | Collar          | (3)        | 02/01/2007    |       | 12/31/2007 |       | $                 | 7.02-$9.00   |             | 15,000 MMbtu |                                                                                    | (1,342       | ) | — |   |
| 01/07                         |       | Collar          | (3)        | 02/01/2007    |       | 12/31/2007 |       | $                 | 7.00-$9.00   |             | 15,000 MMbtu |                                                                                    | (1,335       | ) | — |   |
| 01/07                         |       | Collar          |       | 02/01/2007    |       | 12/31/2007 |       | $                 | 7.00-$9.00   |             | 10,000 MMbtu |                                                                                    | (910         | ) | — |   |
| 01/07                         |       | Collar          |       | 01/01/2008    |       | 12/31/2008 |       | $                 | 7.50-$9.00   |             | 20,000 MMbtu |                                                                                    | (3,642       | ) | — |   |
| 01/07                         |       | Collar          |       | 01/01/2008    |       | 12/31/2008 |       | $                 | 7.50-$9.00   |             | 10,000 MMbtu |                                                                                    | (1,761       | ) | — |   |
| 01/07                         |       | Collar          |       | 01/01/2008    |       | 12/31/2008 |       | $                 | 7.50-$9.02   |             | 10,000 MMbtu |                                                                                    | (1,796       | ) | — |   |
| *** ***                  |       |            |       |          |       |       |       |              |         |             |         |                                                                                    |         |   |   |
| ***Crude  Oil (2)******:***   |       |            |       |          |       |       |       |              |         |             |         |                                                                                    |         |   |   |
| 08/06                         |       | Collar          |       | 01/01/2007    |       | 12/31/2007 |       | $                 | 70.00-$87.50 |             | 400 Bbl      |                                                                                    | 612          |   | 1,047 |   |
| 12/06                         |       | Swap            |       | 01/01/2007    |       | 12/31/2007 |       | $                 | 66.00        |             | 600 Bbl      |                                                                                    | (350         | ) | 212 |   |
| 12/06                         |       | Swap            |       | 01/01/2008    |       | 12/31/2008 |       | $                 | 66.00        |             | 1,500 Bbl    |                                                                                    | (2,032       | ) | (758 | ) |
|                          |       |            |       |          |       |       |       |              |         |             |         | $                                                                                       | (12,556      | ) | $ | 5,187 |   |

----

(1)             The Company’s natural gas collars wereentered into on a per MMbtu delivered price basis, using the NYMEX Natural GasIndex. Mark-to-market accounting treatment is applied to these contracts andthe change in fair value is reflected in total revenue.

(2)             The Company’s crude oil collars wereentered into on a per barrel delivered price basis, using the West TexasIntermediate Light Sweet Crude Oil Index. Mark-to-market accounting treatmentis applied to these contracts and the change in fair value is reflected intotal revenue.

(3)             Subsequent to December 31, 2006, the twonatural gas collars entered into in August 2006 covering a portion of our 2007estimated production were terminated at no cost to the Company and replacedwith the new collars entered into January 2007.

A derivativecontract was entered into after March 31, 2007: 
| ** **                | ** ** | ** **                         | ** ** | **Effective Dates** | ** ** | ** ** | ** ** | ** **                   | ** ** |
|---------------------------|------------|------------------------------------|------------|--------------------------|------------|------------|------------|------------------------------|------------|
| **Transaction Date** | ** ** | **Transaction Type (1)** | ** ** | **Beginning**            | ** ** | **Ending** | ** ** | **Price Per Unit** | ** ** | **Volume Per Day** | ** ** |
| 04/07                     |       | Natural Gas Collar                 |       | 01/01/09                 |       | 12/31/09   |       | $7.75-$10.00                 |       | 10,000 MMbtu |   |

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(1)             OurApril 2007 natural gas collar was entered into on a per MMbtu delivered pricebasis, using the NYMEX Natural Gas Index. Mark-to-market accounting treatmentwill be applied to this contract and the change in fair value will be reflectedin total revenue.

**9. ACQUISITIONS& DIVESTITURES**

**Smith**Acquisition**** -On November 16, 2006, the Company entered into two separate purchase and saleagreements (one of which was subsequently amended) with Smith Production Inc. (“Smith”)for (A) (i) ownership interests in certain oil and gas properties located in 13counties in southeast and south Texas, consisting of approximately 150 gross(74 net) producing wells from Smith and eight other owners who transferredtheir interests to Smith prior to the closing, (ii) an ownership interest inapproximately 17,000 gross (12,250 net) developed acres and 56,000 gross(16,000 net) undeveloped acres of leasehold, (iii) 25% of Smith’s option andleasehold rights and exploration and development rights in an approximate 95square mile exploration project area known as the Mission project area, also insouth Texas, and (iv) certain gathering facilities and ownership toapproximately 13 miles of natural gas gathering pipelines and relatedinfrastructure serving producing assets in southeast Texas ((i) through (iv)collectively referred to as the “Smith Properties”); and (B) working interest,option and leasehold rights in two exploration ventures in separate areas,primarily in Texas, from Smith (the “Smith Ventures” and collectively with 

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the Smith Properties, the“Properties”).  The combined cashpurchase price paid at closing on January 31, 2007 was approximately $379.8million for the Smith Properties and $10.0 million for the Smith Ventures(which includes the deposit paid in December 2006).  The purchase price for the Smith Propertieswas adjusted from the base purchase price of $385 million for, among otherthings, the results of operations of the Smith Properties between the January1, 2007 effective date and the January 31, 2007 closing date. The Companyexpects further adjustments to the purchase price pursuant to the post-closingadjustment provisions of the amended purchase and sale agreements. The Companyfinanced the purchase price of the Smith Acquisition through public offeringsof common and preferred stock (see Note 3) and borrowings under its RevolvingFacility (see Note 2). The Company also capitalized approximately $0.6 millionin other direct costs resulting from the acquisition and assumed AROliabilities of $0.9 million.

The followingunaudited pro forma results for the three months ended March 31, 2006 show theeffect on the Company’s consolidated results of operations as if the SmithAcquisition had occurred on January 1, 2006. The acquisition closed January 31,2007, therefore the first quarter of 2007 is only partially representative ofthe results of integrating the acquisition. The Company has not presented proforma results for the one month ended January 31, 2007 due to unavailability ofdata at the time these financials were prepared. Therefore, the pro formaresults are not directly comparable to the quarter in 2007. The pro formaresults for 2006 are the result of combining the statement of income for theCompany with the revenues and direct operating expenses of the Smith propertiesacquired adjusted for (1) assumption of ARO liabilities and accretion expensefor the properties acquired, (2) depletion expense applied to the adjustedbasis of the properties acquired using the purchase method of accounting, (3)depreciation expense for other non-oil and gas assets acquired, (4) interestexpense on added borrowings necessary to finance the acquisition, (5)amortization of deferred loan costs for new loan costs related to the financingof the acquisition, (6) dividends payable on the convertible Preferred Stock,(7) the related income tax effects of these adjustments based on the applicablestatutory rates, and (8) the impact of common and preferred shares issued inpublic offerings completed to partially finance the Smith Acquisition. The proforma information is based upon numerous assumptions, and is not necessarilyindicative of future results of operations:

| For the Three Months Ended  March 31, 2006 | ** ** |
|--------------------------------------------------------------------------|------------|
| **(unaudited)**                                                          | ** ** |
| **(in thousands, except per share amounts)**    | ** ** |
| Total revenue                                                            |       | $ | 55,481 |   |
| Net income                                                               |       | 11,005 |   |
| Net income  available to common stockholders                             |       | 9,283 |   |
| Net income per  common share:                                            |       |   |   |
| Basic                                                                    |       | $ | 0.33 |   |
| Diluted                                                                  |       | $ | 0.29 |   |

 

**Chapman**Ranch FieldAcquisition in 2006** -**On December 12, 2006, theCompany executed an agreement to acquire certain working interests in theChapman Ranch Field in Nueces County, Texas from Kerr-McGee Oil & GasOnshore LP (“Kerr-McGee”), a wholly-owned subsidiary of Anadarko PetroleumCorporation.  In late 2005, the Companyacquired non-operated working interests in certain wells in this field. Uponthe closing of the Kerr-McGee acquisition on December 28, 2006, the Company assumedthe role of operator of the Chapman Ranch Field.  The base purchase price of the acquisitionwas $26.0 million. The purchase price was preliminarily adjusted at closing to$25.0 million (including a previously paid deposit of $2.6 million) as a resultof adjustments to the purchase price for the results of operations between theDecember 1, 2006 effective date and the December 28, 2006 closing date, andother purchase price adjustments.  Theremay be post-closing adjustments to the purchase price for results of operationsbetween the effective date and closing date as further information becomesavailable. The Company financed the purchase price of the Kerr-McGeeacquisition through $24.0 million in borrowings under its Prior CreditFacility.

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**Divestitures****- During January 2007, the Companydivested a portion of its interest in a Louisiana well for a sales price of$1.1 million.**

**10. COMMITMENTSAND CONTINGENCIES**

From time to time the Company is a party to variouslegal proceedings arising in the ordinary course of business.  While the outcome of lawsuits cannot bepredicted with certainty, the Company is not currently a party to anyproceeding that it believes, if determined in a manner adverse to the Company,could have a material adverse effect on its financial condition, results ofoperations or cash flows, except as set forth below.

**Wadeand Joyce Montet, et al., v. Edge Petroleum Corp of Texas, et al., consolidatedwith Rolland L. Broussard, et al., v. Edge Petroleum Corp of Texas, et al****.**   - This is a consolidated suit,filed in state court in Vermilion Parish, Louisiana in September 2003.Plaintiffs are mineral/royalty owners under the Norcen-Broussard No. 1 and 2wells, Marg Tex Reservoir C, Sand Unit A (Edge’s old Bayou VermilionProspect).  They claim the operator at the time, Norcen Explorer, nowAnadarko E&P Company (“Anadarko”), failed to “block squeeze” the sectionsof the No. 2 well, as a prudent operator, according to their allegations, wouldhave done, to protect the gas reservoir from being flooded with water fromadjacent underground formations. Plaintiffs further allege Norcen was negligentin not creating a field-wide unit to protect their interests.  Theallegations relate to actions taken beginning in the early 1990’s. Plaintiffshave named the Company and other working interest owners in the leases asdefendants, including Norcen Explorer’s successors in interest, Anadarko.Plaintiffs originally sought unspecified damages for lost royalties and damagesdue to alleged devaluation of their mineral and property interests, plusinterest and attorneys’ fees. In early 2005, the Company filed a motion forsummary judgment in the case asserting, among other defenses, that:  (i)there has been no breach of contract, (ii) there is no express or implied dutyimposed on the Company to block squeeze the well or form a field-wide unit,(iii) the units were properly formed by the Conservation Commissioner inaccordance with the statutory scheme in Louisiana, (iv) plaintiffs’ claims arebarred by limitations, and (v) other defenses. Along with the other defendants,the Company also filed a special peremptory challenge of no cause of actionunder the leases and the Louisiana Mineral Code for failure to exhaustadministrative remedies and due to lack of a demand. In May and June 2005, thecourt ruled against the Company on the motion for summary judgment and theperemptory challenges. Of the 18.75% after-payout working interest that wasoriginally reserved in the leases, the Company owned a 2.8% working interest atthe time of the alleged acts or omissions. On September 6, 2005, the Companyfiled a third-party demand to join the other working interest owners who holdthe remainder of the 18.75% working interest as third-party defendants in thiscase. These third-parties consist, for the most part, of partnerships that aredirectly or indirectly controlled by John Sfondrini, a director of the Company,and hold an aggregate 14.7% working interest (the “Sfondrini Partnerships”).Vincent Andrews, also a director of the Company, owns a minority interest inthe corporate general partner of one of the partnerships.  The SfondriniPartnerships consist of (1) Edge Group Partnership, a general partnershipcomposed of limited partnerships of which Mr. Sfondrini and a companycontrolled by Mr. Sfondrini are general partners; (2) (A) Edge Option I LimitedPartnership, (B) Edge Option II Limited Partnership and (C) Edge Option IIILimited Partnership, limited partnerships of which Mr. Sfondrini and a companycontrolled by Mr. Sfondrini are general partners; and (3) BV Partners LimitedPartnership, a limited partnership of which a company controlled by Messrs.Sfondrini and Andrews is general partner and of which Mr. Sfondrini is manager(and of which company Mr. Andrews is an officer).  These partnerships wereamong the third party defendants that the Company has sought to join in thecase, and these partnerships have for the most part filed answers denying anyliability to the Company. The Company participated for its 2.8% share of thewell costs and revenues for the Broussard No. 2 well, as did the otherdefendants for their share, including the third-party defendant partnershipswho participated for 14.7%. The Company strongly believes the parties shouldonly be liable for their proportionate share of any damages awarded should afinding of liability occur in the case. The Company intends to vigorouslycontest the plaintiffs’ claims.

Asof the date of this report, it is not possible to determine what, if any, theCompany’s ultimate exposure might be in this matter. Prior to the settlementdescribed below, plaintiffs had asserted damages, including interest, to be ashigh as $63 million.  The plaintiffs’ expert witness, in his December 2005deposition, offered his theory that plaintiffs’ gross damages are in the rangeof $19 to $22 million. That number is based on his theory that the allegedfailure to block squeeze the well resulted in the under-production of gas worth$300 million. Plaintiffs’ royalty share of that figure yields the $19 to $22million range of alleged damages. Based on the expert’s testimony, damages 

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attributable tothe full 18.75% interest would be in the range of $3.75 million gross or net toour 2.8% share would be in the range of $560,000 (excluding interest andattorneys’ fees). Along with the other defendants, the Company hired its ownexpert witnesses who have refuted these claims, particularly the expert’sassertions that failure to block squeeze the well caused any damages to thereservoir. The deposition of a Norcen engineer who prepared the completion planfor the Broussard No. 2 well and supervised the completion operations, taken inApril 2006, confirms the testimony of the defense experts as to why the wellwas not block squeezed.  The plaintiffs have also retained a damagesexpert who has given a report that the damages in this case are in the range of$30 million, excluding interest and attorneys’ fees.  The Company’s shareof that amount based on the full 18.75% would be approximately $5.6 million andnet to our 2.8% share would be approximately $840,000. The Company participatedin mediation of this lawsuit on July 18, 2006 but the parties failed to reachan agreement.  In July 2006, the plaintiffs’ attorney sent a demand to thedefendants for total damages claimed by plaintiffs, with legal interest,totaling $63 million.  The Company’s share of that amount based on thefull 18.75% interest would be approximately $12.2 million and net to our 2.8%interest would be approximately $1.8 million. On July 31, 2006, the Judgegranted the defendant groups’ motion for partial summary judgment dismissingplaintiffs’ tort-based claims. Also on the same date, the Judge granted thedefendant groups’ motion for partial summary judgment seeking to deny theplaintiffs an award of attorneys’ fees and also to dismiss any claim ofplaintiffs that defendants had an obligation to form a field-wide unit.

OnDecember 19, 2006, the Company, along with the other defendants in this suit,reached a settlement agreement with the Broussard Plaintiffs in full settlementof their 72% of the total claims made in this consolidated action. Thissettlement was finalized in January 2007.  The Company’s share of thissettlement totaled approximately $208,000, which was recorded in December 2006,and the Sfondrini Partnerships’ share totaled $1,109,759.  The settlementwith the Broussard Plaintiffs was finalized on February 1, 2007, and thedefendants and the third-party defendants including the Sfondrini Partnershipswere released from all claims by the Broussard Plaintiffs.

The Company willparticipate in a mediation regarding the remaining claims in this lawsuit withthe Montet plaintiffs on May 10, 2007. If this matter is not resolved at mediation, the trial on the remainingclaims of the Montet plaintiffs (approximately 28% of the original aggregateclaims in the case) will begin on August 27, 2007.  The Montet plaintiffs’calculation of their alleged damages has not changed.  If the jury were toadopt the plaintiffs’ damage figures, the total damages attributable to theMontet plaintiffs could be approximately $17.6 million. The defendants’exposure for an 18.75% share of that number would be approximately $3.31million.  The exposure for the Company’s 2.8% share would be approximately$493,000.  If there were a damage award against the defendants, theCompany believes that ultimately it should only be liable for its 2.8% share ofany such award unless a co-party defendant, including any of the third-partydefendants, cannot satisfy their share of any final judgment or settlementamount or are found not to be liable to the Company on its third-partydemand.  In that event, the Company could be held responsible for morethan its 2.8% share.  The Company believes it has meritorious defenses andintends to continue to vigorously contest this suit and its third-party demandsagainst the partnerships.  The Company has not established a reserve withrespect to these claims.

TheCompany may have insurance coverage for all or part of this claim up to thepolicy limits of $1 million per occurrence and $2 million in theaggregate.  A claim was submitted to Mid-Continent Casualty Company, ourcasualty carrier, who is currently providing a defense under a reservation ofrights letter.  However, on July 3, 2006, Mid-Continent filed a suit fordeclaratory judgment against the Company in federal district court in Houston,Texas seeking to determine whether it has a duty to indemnify the Company andcertain other defendants for this loss under the policies at issue. Mid-Continent has asked the court to declare they have no obligation toindemnify the Company and the third-party defendants based on certain technicaldefinitions under the policies and the fact that the plaintiffs’ claims arebased on alleged breaches of contract.  The Company is both vigorouslydefending the declaratory judgment action, and actively seeking indemnity underthe policies at issue for its potential liabilities, if any, to the plaintiffsin the Louisiana actions.  The Company is also pursuing coverage claimsunder other insurance policies that could cover a portion of our share of aloss in this case.

**                David Blake, et al. v. EdgePetroleum Corporation** — On September 19, 2005, DavidBlake and David Blake, Trustee of the David and Nita Blake 1992 Children’sTrust filed suit against the Company in state district court in Goliad County,Texas alleging breach of contract for failure and refusal to transferoverriding royalty interests to plaintiffs in at least five leases in GoliadCounty, Texas and failure and refusal to pay monies to Blake 

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pursuant to suchoverriding royalty interests for wells completed on the leases. The plaintiffsseek relief of (1) specific performance of the alleged agreement, includinggranting of overriding royalty interests by the Company to Blake; (2) monetarydamages for failure to grant the overriding royalty interests; (3) exemplarydamages for his claims of business disparagement and slander; (4) monetarydamages for tortuous interference; and (5) attorneys’ fees and court costs.Venue of the case was transferred to Harris County, Texas by agreement of thelitigants.  The Company has served plaintiffs with discovery and has fileda counterclaim and an amended counterclaim joining various related entities thatare controlled by plaintiffs.  In addition, plaintiffs have filed anamended complaint alleging claims of slander of title and tortuous interferencerelated to its alleged right to receive an overriding royalty interest from athird party.  Plaintiffs currently have on file an amended motion forsummary judgment, to which the Company has filed a response.  In addition,the Company has filed a motion for summary judgment on the plaintiffs’ case. In December 2006, the court denied the Company’s motion for summaryjudgment.  The court has not ruled on Blake’s motion.  The trial isscheduled to begin September 15, 2007.  Discovery in the case hascommenced and is continuing. The Company has responded aggressively to thislawsuit, and believes it has meritorious defenses and counterclaims.

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**ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

The following is Management’s Discussion and Analysis(“MD&A”) of significant factors that have affected certain aspects of ourfinancial position and operating results during the periods included in theaccompanying unaudited condensed consolidated financial statements. Thefollowing MD&A is intended to help the reader understand Edge PetroleumCorporation (“Edge”). This discussion should be read in conjunction with theaccompanying unaudited condensed consolidated financial statements includedelsewhere in this Form 10-Q and with MD&A of Financial Condition andResults of Operations and our audited consolidated financial statementsincluded in our annual report on Form 10-K for the year ended December 31, 2006(2006 Annual Report).

### **FORWARDLOOKING STATEMENTS**

Certain of the statements contained in all parts ofthis document, including, but not limited to, those relating to our drillingplans (including scheduled and budgeted wells), the effect of changes instrategy and business discipline, future tax matters, our 3-D projectportfolio, future general and administrative expenses on a per unit ofproduction basis, changes in wells operated and reserves, future growth andexpansion, future exploration, future seismic data (including timing andresults), expansion of operation, our ability to generate additional prospects,our review of outside prospects and acquisitions, additional reserves andreserve increases, our ability to replace production and manage our asset base,enhancement of visualization and interpretation strengths, expansion andimprovement of capabilities, integration of new technology into operations,credit facilities, redetermination of our borrowing base, attraction of newmembers to the technical team, future compensation programs, new focus on coreareas, new prospects and drilling locations, new alliances, future capitalexpenditures (or funding thereof) and working capital, sufficiency of futureworking capital, borrowings and capital resources and liquidity, projectedrates of return, retained earnings and dividend policies, projected cash flowsfrom operations, future commodity price environment, expectation or timing ofreaching payout, the outcome, effects or timing of any legal proceedings orcontingencies, the impact of any change in accounting policies on our financialstatements, the number, timing or results of any wells, the plans for timing,interpretation and results of new or existing seismic surveys or seismic data,future production or reserves, future acquisition of leases, lease options orother land rights, any other statements regarding future operations, financialresults, opportunities, growth, business plans and strategy and otherstatements that are not historical facts are forward-looking statements. Theseforward-looking statements reflect our current view of future events andfinancial performance. When used in this document, the words “budgeted,” “anticipate,”“estimate,” “expect,” “may,” “project,” “believe,” “intend,” “plan,” “potential,”“forecast,” “might,” “predict,” “should” and similar expressions are intendedto be among the expressions that identify forward-looking statements. Theseforward-looking statements speak only as of their dates and should not beunduly relied upon. We undertake no obligation to publicly update or revise anyforward-looking statement, whether as a result of new information, futureevents, or otherwise. Such statements involve risks and uncertainties,including, but not limited to, those set forth under “ITEM 1A. RISK FACTORS” ofour 2006 Annual Report on Form 10-K and other factors detailed in this documentand our other filings with the Securities and Exchange Commission (the “SEC”).Should one or more of these risks or uncertainties materialize, or shouldunderlying assumptions prove incorrect, actual outcomes may vary materiallyfrom those indicated. All subsequent written and oral forward-lookingstatements attributable to us or to persons acting on our behalf are expresslyqualified in their entirety by reference to these risks and uncertainties.

**GENERAL OVERVIEW**

Edge Petroleum Corporation (“Edge”, “we” or the “Company”)is a Houston-based independent energy company that focuses its exploration,development, production, acquisition and marketing activities in selectedonshore basins of the United States. In late 1998, we undertook a top-levelmanagement change and began a shift in strategy from pure exploration, whichfocused more on prospect generation, to our current strategy which focuses on abalanced program of exploration, exploitation and development and acquisitionof oil and gas properties. We generate revenues, income and cash flows byproducing and marketing oil and natural gas produced from our oil and naturalgas properties. We make significant capital expenditures in our exploration,development, and production activities that allow us to continue generatingrevenue, income and cash flows.  We havealso spent considerable 

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efforts on acquisitions, including both corporate andasset acquisitions, which have contributed to our growth in recent years.

Thisoverview provides our perspective on the individual sections of MD&A. OurMD&A includes the following sections:

·                  **Industry and Economic Factors** — a generaldescription of value drivers of our business as well as opportunities,challenges and risks related to the oil and gas industry.

·                  **Approach to the Business** — additionalinformation regarding our approach and strategy.

·                  **Acquisitions and Divestitures** — informationabout significant changes in our business structure.

·                  **Outlook** — additional discussion relating tomanagement’s outlook to the future of our business.

·                  **Critical Accounting Policies and Estimates** —a discussion of certain accounting policies that require critical judgments andestimates.

·                  **Results of Operations** — an analysis of ourconsolidated results for the periods presented in our financial statements.

·                  **Liquidity and Capital Resources**—****an analysis of cash flows, sources anduses of cash, and contractual obligations.

·                  **Risk Management Activities — Derivatives & Hedging**—****supplementaryinformation regarding our price-risk management activities.

·                  **Tax Matters** — supplementary discussion ofincome tax matters.

·                  **Recently Issued Accounting Pronouncements** —a discussion of certain recently issued accounting pronouncements that mayimpact our future results.

**Industry andEconomic Factors**

Inmanaging our business, we must deal with many factors inherent in ourindustry.  First and foremost is thefluctuation of oil and gas prices. Historically, oil and gas markets have beencyclical and volatile, which makes price movements difficult to predict. Whileour revenues are a function of both production and prices, wide swings in commodityprices have most often had the greatest impact on our results of operations. Wehave little ability to predict those prices or to control them without losingsome advantage of the upside potential.

Ouroperations entail significant complexities. Advanced technologies requiringhighly trained personnel are utilized in both exploration and production.  Even when the technology is properly used, wemay still not know conclusively if hydrocarbons will be present or the rate atwhich they will be produced.  Explorationis a high-risk activity, often times resulting in no commercially productivereserves being discovered. Moreover, costs associated with operating within ourindustry are substantial, especially during periods of high commodity prices.

Our business,as with other extractive businesses, is a depleting one in which each gasequivalent produced must be replaced or our asset base and capacity to generaterevenues in the future, will shrink.

Theoil and gas industry is highly competitive. We compete with major and diversified energy companies, independent oiland gas businesses and individual operators in exploration, production,marketing and acquisition activities.  Inaddition, the industry as a whole competes with other businesses that supplyenergy to industrial and commercial end users.

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Extensivefederal, state and local regulation of the industry significantly affects ouroperations.  In particular, ouractivities are subject to stringent operational and environmental regulations.  These regulations have increased the costs ofplanning, designing, drilling, installing, operating and abandoning oil and gaswells and related facilities.  Theseregulations may become more demanding in the future.

**Approach to theBusiness**

Profitablegrowth of our business will largely depend upon our ability to successfullyfind and develop new proved reserves of oil and natural gas in a cost-effectivemanner.  In order to achieve an overallacceptable rate of growth, we seek to maintain a prudent blend of low, moderateand higher risk exploration and development projects.  We have chosen to seek geologic andgeographic diversification by operating in multiple basins in order to mitigaterisk in our operations. We also attempt to make selected acquisitions of oiland gas properties to augment our growth and provide future drillingopportunities.

Weperiodically hedge our exposure to volatile oil and gas prices on a portion ofour production to reduce price risk. As of March 31, 2007, we had derivativecontracts in place covering approximately 61% of our remaining expected naturalgas production and 68% of our remaining expected 2007 crude oilproduction.  As of March 31, 2007,approximately 55% of total remaining 2007 estimated production on an Mcfe basis(including natural gas liquids) was hedged with derivative contracts. As ofMarch 31, 2007, we also had derivative contracts in place coveringapproximately 46% and 75% of our anticipated 2008 natural gas and crude oilproduction, respectively.  All of suchestimated production is before any new acquisitions that may occur.

Generally, ourgoal is to fund ongoing exploration and development projects with cash flowprovided by operating activities and external sources of capital. During thefirst quarter of 2007, our Board approved a 2007 capital budget ofapproximately $140 million. Based upon current expectations for productionvolumes and commodity prices, we expect to fund our capital program withinternally-generated cash from operating activities and borrowings under ourRevolving Facility (as defined below). We do not typically include acquisitionsin our budgeted capital expenditures, but expect to utilize either borrowingsunder our Revolving Facility, proceeds from offerings of common stock or othersecurities under our shelf registration statement or other sources to fundthose potential acquisitions.

Our long-term debtbalance as of March 31, 2007 was $240.0 million and our debt-to-total capitalratio was 36.1%.

**Acquisitions and Divestitures**

*Acquisitions -*We have become increasingly active in acquisitions inrecent years. We have looked to acquisitions to enable us to achieve our growthobjectives and we expect acquisitions will continue to play a significant rolein our future plans for growth. Acquisitions add meaningful incrementalincreases in reserves and production and may range in size from acquiring aworking interest in non-operated producing property to acquiring an entirefield of wells or a company. Unlike drilling capital, which is planned and budgeted,acquisition capital is neither budgeted nor allocated, because the specifictiming or size of acquisitions cannot be predicted. Although we consider a widevariety of acquisitions, a significant part of our growth strategy is expectedto be focused toward producing property acquisitions, which we believe haveexploitable potential. We try to maintain enough financial flexibility suchthat we are positioned to take advantage of producing property acquisitionopportunities as they may arise.  Webelieve through hard work, technical ability and creative thinking of ourpeople, we will continue to grow through both acquisitions and drilling. Anysuch acquisition could involve the payment by us of a substantial amount ofcash or the issuance of a substantial number of additional shares or othersecurities.

SmithAcquisition - During the first quarter of 2007, we completedthe largest acquisition in our history. We acquired oil and natural gasproperties, exploration rights, leasehold acreage, gathering facilities andgathering pipelines from Smith Production Inc. for a cash purchase price ofapproximately $389.8 million. Pursuant to closing adjustment provisions in theagreements, the purchase price is subject to adjustment for the results ofoperations between the January 1, 2007 effective date and the January 31, 2007closing date. We expect to finalize that 

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adjustment duringthe second quarter of 2007. The properties acquired are located in south andsoutheast Texas, which we consider to be our main core area of operations. Thisacquisition had a substantial impact to our reserves, production revenues,operating costs, and property base. We have increased staffing levels to managethe growth and help with the integration of these assets into our operations.We expect this acquisition to have a transforming impact to our company.

ChapmanRanch Acquisition - During the fourth quarter of 2006, wecompleted the acquisition of additional working interests in the Chapman RanchField, in which we also acquired interests from two other companies during thefourth quarter of 2005. We also assumed the role of operator of theseproperties as a result of this acquisition. The preliminary adjusted purchaseprice was approximately $25.0 million. Pursuant to closing adjustmentprovisions in the agreements, the purchase price is subject to furtheradjustment for the results of operations between the December 1, 2006 effectivedate and the December 28, 2006 closing date, which we expect to finalize duringthe second quarter of 2007. The properties acquired are located in NuecesCounty, Texas and consisted of nine producing wells and an ownership inapproximately 1,200 net acres of developed and undeveloped leasehold.

*Divestitures -*We regularly review our asset base forthe purpose of identifying non-core assets, the disposition of which wouldincrease capital resources available for other activities and createorganizational and operational efficiencies. While we generally do not disposeof assets solely for the purpose of reducing debt, such dispositions can havethe result of furthering our objective of financial flexibility through reduceddebt levels. During the first quarter of 2007, we divested a portion of ourinterest in one of our Louisiana properties for a sales price of approximately$1.1 million.

**Outlook**

·                  Duringthe three months ended March 31, 2007, a total of four wells were drilled withthree apparent successes, for an overall success rate of 75%.

·                  We expect to drill between 80 and 90 wells (34 and38 net, respectively) in 2007 and we estimate capital spending for the year tobe approximately $140 million. Our ability to materially increase thenumber of wells to be drilled is heavily dependent upon the timely access tooilfield services, particularly drilling rigs.

·                  Wehave and will spend a considerable effort in 2007 integrating the assetsacquired in the Smith Acquisition, which had the largest impact of anyacquisition on our company. This will include continuing to add to our stafflevels to manage the recent and anticipated future growth.

·                  Wewill continue to spend considerable effort in 2007 finding and evaluatingacquisition opportunities, as we seek to further our growth.

·                  Inthe first quarter of 2007, we issued preferred stock and we declared our firstdividend payment to preferred stockholders, which we paid in April 2007. Weexpect to issue preferred stock dividends quarterly in 2007.

·                  Tohelp protect against the possibility of downward commodity price movements andlost revenue, we have several derivatives in place to hedge a portion of ourexpected natural gas and crude oil production streams for 2007 through 2009. Weapply mark-to-market accounting treatment, rather than cash flow hedgeaccounting treatment, and therefore significant volatility from the changes infair value of those outstanding contracts have and will impact our earnings in2007 (see Note 8 to our consolidated financial statements).

Our outlook and the expected results described aboveare both subject to change based upon factors that include but are not limitedto drilling results, commodity prices, access to capital, the acquisitionsmarket and factors referred to in “Forward Looking Statements.”

**Critical Accounting Policies andEstimates**

The preparation offinancial statements in conformity with generally accepted accountingprinciples in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets,liabilities, revenues, expenses, contingent assets and liabilities and therelated disclosures in the 

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accompanying financialstatements.  Changes in these estimatesand assumptions could materially affect our financial position, results ofoperations or cash flows. Management considers an accounting estimate to be criticalif:

·                  it requires assumptions to be made that were uncertainat the time the estimate was made, and

·                  changes in the estimate or different estimates thatcould have been selected could have a material impact on our consolidatedresults of operations or financial condition.

All othersignificant accounting policies that we employ are presented in the notes tothe consolidated financial statements. The following discussion presentsinformation about the nature of our most critical accounting estimates, ourassumptions or approach used and the effects of hypothetical changes in thematerial assumptions used to develop each estimate.

*Nature of Critical Estimate Item:*Oil and Natural Gas Reserves - Our estimate of proved reserves isbased on the quantities of oil and gas which geological and engineering datademonstrate, with reasonable certainty, to be recoverable in future years fromknown reservoirs under existing economic and operating conditions.  The accuracy of any reserve estimate is afunction of the quality of available data, engineering and geologicalinterpretation, and judgment, as well as prices and cost levels at that pointin time. Any significant variance in these assumptions could materially affectthe estimated quantity and value of our reserves. Despite the inherentimprecision in these engineering estimates, our reserves are used throughoutour financial statements.

*Assumptions/ApproachUsed:*Units-of-production method to amortize our oil andnatural gas properties - The quantity of reserves is used in calculatingdepletion expense and could significantly impact our depletion expense.

* *“Ceiling” Test - Thefull-cost method of accounting for oil and gas properties requires a quarterlycalculation of a limitation on capitalized costs, often referred to as afull-cost ceiling test. The ceiling is the discounted present value of ourestimated total proved reserves (using a 10% discount rate) adjusted for taxesand the impact of cash flow hedges on pricing, if cash flow hedge accounting isapplied. The ceiling test calculation dictates that prices and costs in effectas of the last day of the period are to be used in calculating the discountedpresent value of our estimated total proved reserves. Oil and natural gasprices used in the reserve valuation at March 31, 2007 were $65.88 per barreland $7.34 per MMbtu. To the extent that our capitalized costs (net ofaccumulated depletion and deferred taxes) exceed the ceiling, the excess mustbe written off to expense. Once incurred, this impairment of oil and gasproperties is not reversible at a later date even if oil and gas pricesincrease. A ceiling test impairment could result in a significant loss for areporting period; however, future depletion expense would be correspondinglyreduced. No such impairment was required in the three months ended March 31,2006 or 2007.

*Effect if Different Assumptions Used:*Units-of-production method to amortizeour oil and natural gas properties - A 10% increase or decrease in reserves would havedecreased or increased, respectively, our depletion expense for the year byapproximately 10%.

“Ceiling”limitation test -The most likely factor to contribute to a ceiling test impairment is the priceused to calculate the reserve limitation threshold. A significant reduction inprices at a measurement date could trigger a full-cost ceiling impairment. Wehad a cushion of $75.6 million , net of tax, at March 31, 2007. A 10% increaseor decrease in prices used would have increased or decreased our cushion (i.e.the excess of the ceiling over our capitalized costs) by approximately 77%, netof tax, respectively. Our hedging program would serve to mitigate some of theeconomic impact of any price decline. However, since we do not apply cash flowhedge accounting to our derivative contracts, our hedging program did not havean impact on the ceiling test at March 31, 2007. Had we applied cash flow hedgeaccounting to our outstanding derivative contracts, the cushion would haveincreased by 2%. Another likely factor to contribute to a ceiling testimpairment is a revised estimate of reserve volume. A 10% increase or decreasein reserve volume would have decreased or increased our cushion byapproximately 55%, net of tax, respectively. As noted above, we used pricing and costs as of the last day of theperiod to determine our ceiling test. Should commodity 

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prices decreasesignificantly in 2007, the possibility of a ceiling test impairment at a futuredate exists.  Also, the effects of theSmith Acquisition in 2007 could increase the possibility that we will berequired to record a ceiling test impairment, particularly if commodity pricesdecline below the effective levels paid for in the Smith Acquisition.

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*Nature of Critical Estimate Item:*Unproved Property Impairment****- We have elected to use the full-costmethod to account for our oil and gas activities. Investments in unprovedproperties are not amortized until proved reserves associated with theprospects can be determined or until impairment occurs. Unproved properties areevaluated quarterly, and as needed, for impairment on a property-by-propertybasis.  If the results of an assessmentindicate that an unproved property is impaired, the amount of impairment isadded to the proved oil and natural gas property costs to be amortized.

*Assumptions/Approach Used:*At March 31, 2007, we had $88.5 million allocated tounproved property. This allocation is based on costs to date that areassociated with potential attributable reserves.

*Effect if Different Assumptions Used:* A 10% increase or decrease in theunproved property balance (i.e., transfer to full-cost pool) would havedecreased or increased, respectively, our depletion expense by approximately 1%for the three months ended March 31, 2007.

----

*Nature of Critical Estimate Item:*Asset Retirement Obligations**-**Wehave certain obligations to remove tangible equipment and restore land at theend of oil and gas production operations. Our removal and restoration obligations are primarily associated withplugging and abandoning wells. Prior to the adoption of Statement of FinancialAccounting Standards (“SFAS”) No. 143, *Accountingfor Asset Retirement Obligations,* costs associated with thisactivity were capitalized to the full-cost pool as they were incurred andcharged to income through depletion expense. SFAS No. 143 significantly changedthe method of accruing for costs which an entity is legally obligated to incurrelated to the retirement of fixed assets (“asset retirement obligations” or “ARO”).  Primarily, SFAS No. 143 requires us to estimateasset retirement costs for all of our assets upon acquisition of the asset,adjust those costs for inflation to the forecast abandonment date, discountthat amount using a credit-adjusted-risk-free rate back to the date we acquiredthe asset or obligation to retire the asset and record an ARO liability in thatamount with a corresponding addition to our asset value. When new obligationsare incurred, i.e. a new well drilled or acquired, we add to the ARO liability.Should either the estimated life or the estimated abandonment costs of aproperty change upon our quarterly review, our estimate must be revised. Whenwell obligations are relieved by sale of the property or plugging andabandoning the well, the related estimated liability and asset costs areremoved from our balance sheet and replaced by the costs actually spent onretiring the asset.

Estimating thefuture asset removal costs is difficult and requires management to makeestimates and judgments because most of the removal obligations are many yearsin the future, and contracts and regulations often have vague descriptions ofwhat constitutes removal.  Asset removaltechnologies and costs are constantly changing, as are regulatory, political,environmental, safety and public relations considerations. Inherent in theestimate of the present value calculation of our AROs are numerous assumptionsand judgments including the ultimate settlement amounts, inflation factors,credit-adjusted-risk-free-rates, timing of settlement, and changes in the legal,regulatory, environmental and political environments.

*Assumptions/ApproachUsed:*  Since there areso many variables in estimating AROs, we attempt to limit the impact ofmanagement’s judgment on certain of these variables by using input of qualifiedthird parties. We engage independent engineering firms to evaluate ourproperties annually. We use the remaining estimated useful life from theyear-end reserve reports prepared by our independent reserve engineers inestimating when abandonment could be expected for each property. We utilize athree-year average rate for inflation to diminish any significant volatilitythat may be present in the short term. We have developed a standard cost 

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estimate based on historical costs, industry quotesand depth of wells. Unless we expect a well’s plugging to be significantlydifferent than a normal abandonment, we use this estimate.

*Effect if Different Assumptions Used:* We expect to see our calculationsimpacted significantly if interest rates rise, as the credit-adjusted-risk-freerate is one of the variables used on a quarterly basis. We also expect thatsignificant changes to the cost of retiring assets or the reserve life of ourassets would have significant impact on our estimated ARO. The resultingestimate, after application of a discount factor and some significantcalculations, could differ from actual results, despite all our efforts to makean accurate estimate.

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*Nature of Critical Estimate Item:*Income Taxes**-**In accordance with SFAS No. 109, *Accounting for Income Taxes,* we haverecorded a deferred tax asset and liability to account for the expected futuretax benefits and consequences of events that have been recognized in ourfinancial statements and our tax returns. There are several items that resultin deferred tax asset and liability impact to the balance sheet, but thelargest of which are income taxes and the impact of net operating loss (“NOL”)carryforwards. We routinely assess our ability to use all of our NOLcarryforwards that resulted from substantial income tax deductions, prior yearlosses and acquisitions. We consider future taxable income in making suchassessments.  If we conclude that it ismore likely than not that some portion or all of the deferred tax assets willnot be realized under accounting standards, it is reduced by a valuationallowance to remove the benefit of those NOL carryforwards from our financialstatements.

*Assumptions/ApproachUsed:*Numerousjudgments and assumptions are inherent in the determination of future taxableincome, including factors such as future operating conditions (particularly asrelated to prevailing oil and gas prices). We are not currently required to payany federal income taxes because of the prior generation of  NOL carryforwards.

*Effectif Different Assumptions Used:* We have engaged an independentpublic accounting firm to assist us in applying the numerous and complicatedtax law requirements. However, despite our attempt to make an accurateestimate, the ultimate utilization of our NOL carryforwards is highly dependentupon our actual production and the realization of taxable income in futureperiods.

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*Natureof Critical Estimate Item:*Derivative and HedgingActivities**-**Due to theinstability of oil and natural gas prices, we may enter into, from time totime, price-risk management transactions (e.g., swaps, collars and floors) fora portion of our oil and natural gas production to achieve a more predictablerevenue, as well as to reduce exposure from commodity price fluctuations. Whileall of these transactions are economic hedges of price risk, differentaccounting treatment may apply depending on if they qualify for cash flow hedgeaccounting. In accordance with SFAS No. 133, *Accountingfor Derivative Instruments and Hedging Activities (as amended),*alltransactions are recorded on the balance sheet at fair value.

Cash Flow HedgeAccounting - For transactions accounted for under cash flowhedge accounting treatment, the effective portion of the change in fair valueof outstanding derivative contracts is deferred through other comprehensiveincome (“OCI”) on the balance sheet, rather than recorded immediately inrevenue on the income statement. Ineffective portions of the changes in thefair value of the derivative contracts are recognized in revenue as they occur.The cash flows resulting from settlement of these hedge transactions areincluded in cash flows from operating activities on the statement of cashflows. While the hedge contract is outstanding, the fair value may increase ordecrease until settlement of the contract. 

Mark-to-MarketAccounting - Fortransactions accounted for using mark-to-market accounting treatment, theentire change in the fair value of the outstanding derivative contract isrecorded in revenue immediately, and not deferred through OCI, and there is nomeasurement of effectiveness. As of March 31, 2007 and 2006, we appliedmark-to-market accounting treatment to all outstanding derivative contracts.

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*Assumptions/Approach Used:*Estimating the fair values of derivative instrumentsrequires complex calculations, including the use of a discounted cash flowtechnique, estimates of risk and volatility, and subjective judgment inselecting an appropriate discount rate. In addition, the calculations usefuture market commodity prices, which although posted for trading purposes, aremerely the market consensus of forecasted price trends. The results of the fairvalue calculations cannot be expected to represent exactly the fair value ofour commodity derivatives. We currently obtain the fair value of our positionsfrom our counterparties. Our practice of relying on our counterparties who aremore specialized and knowledgeable in preparing these complex calculationsreduces our management’s input. It also approximates the fair value of thecontracts as that would be the cost to us to terminate a contract at that pointin time. Due to the fact that we apply mark-to-market accounting treatment, theoffset to the balance sheet asset or liability, or the change in fair value ofthe contracts, is included in revenue on the income statement rather than inOCI on the balance sheet.

*Effect if Different Assumptions Used:* At March 31, 2007, a 10% change in thecommodity price per unit would cause the fair value total of our derivativefinancial instruments to increase or decrease by approximately $1.3 million.Had we applied cash flow hedge accounting treatment to all of our derivativecontracts outstanding at March 31, 2007, our net income for the three monthswould have been approximately $5.8 million, or $0.18 per basic and $0.17 perdiluted earnings per share, assuming that all hedges were fully effective.

# **Results of Operations**

This section includesdiscussion of our results of operations for the three months ended March 31,2007 as compared to the same period of the prior year.  We are an independent energy company engagedin the exploration, development, acquisition and production of oil and naturalgas.  Our resources and assets aremanaged and our results reported as one operating segment.  We conduct our operations primarily along theonshore United States Gulf Coast, with our emphasis in south and southeastTexas, Louisiana, Mississippi and southeast New Mexico. We completed one acquisition in thefourth quarter of 2006 and one in the first quarter of 2007, whichsignificantly impacted revenues, production and costs for the first threemonths of 2007 and affects the comparability of periods presented.

**First Quarter 2007 Compared to the First Quarter2006**

**Revenue and Production**

Total revenue decreased 35% from the first quarter of2006 to the comparable 2007 period. Excluding the effects of derivativeactivity, revenues increased 20% from the first quarter of 2006 to the comparable2007 period.  For the three months endedMarch 31, 2007 and 2006, our product mix contributed the following percentagesof revenues and production volumes:

|                           | ** ** | ** **                                           | ** ** | **PRODUCTION **VOLUMES | ** ** |
|---------------------------|------------|------------------------------------------------------|------------|-----------------------------|------------|
|                           | ** ** | **REVENUES(1)**                                      | ** ** | **(MCFE)**                  | ** ** |
| ** **                | ** ** | **Three months ended March 31,** | ** ** |
| ** **                | ** ** | **2007**                                             | ** ** | **2006**                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| Natural gas               |       | 67                                                   | %          | 82                          | %          | 78 | % | 80 | % |
| Natural gas liquids       |       | 11                                                   | %          | 4                           | %          | 10 | % | 8 | % |
| Crude oil and  condensate |       | 22                                                   | %          | 14                          | %          | 12 | % | 12 | % |
| Total                     |       | 100                                                  | %          | 100                         | %          | 100 | % | 100 | % |

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(1)             Includeseffect of derivative transactions.

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The following table summarizes volume and priceinformation with respect to our oil and gas production:
| ** **                                    | ** ** | ** **                                                                 | ** ** | ** **   | ** ** | **2007 Period Compared** | ** ** |
|-----------------------------------------------|------------|----------------------------------------------------------------------------|------------|--------------|------------|------------------------------------|------------|
| ** **                                    | ** ** | ** **                                                                 | ** ** | ** **   | ** ** | **to 2006 Period**       | ** ** |
| ** **                                    | ** ** | **Three Months Ended**                                           | ** ** | ** **   | ** ** | **%**                              | ** ** |
| ** **                                    | ** ** | **March 31,**                                                         | ** ** | **Increase** | ** ** | **Increase**                       | ** ** |
| ** **                                    | ** ** | **2007**                                                                   | ** ** | **2006**     | ** ** | **(Decrease)**                     | ** ** | **(Decrease)** | ** ** |
| ** **                                    | ** ** | **(in thousands, except prices and percentages)** | ** ** | ** **   | ** ** |
| **Production Volumes:**                       |       |                                                                       |       |         |       |                               |       |   |   |
| Natural gas  (MMcf)                           |       | 4,465                                                                      |       | 3,429        |       | 1,036                              |       | 30 | % |
| Natural gas  liquids (MBbls)                  |       | 99                                                                         |       | 61           |       | 38                                 |       | 62 | % |
| Crude oil and  condensate (MBbls)             |       | 111                                                                        |       | 87           |       | 24                                 |       | 28 | % |
| Natural gas  equivalent (MMcfe)               |       | 5,721                                                                      |       | 4,314        |       | 1,407                              |       | 33 | % |
| **Average Sales Price(1):**                   | ** ** | ** **                                                                 | ** ** | ** **   | ** ** | ** **                         | ** ** | ** ** | ** ** |
| Natural gas ($ per  Mcf)(2)              |       | $                                                                          | 6.78       |         | $          | 7.72                               |       | $ | (0.94 | ) | (12 | )% |
| Natural gas  liquids ($ per Bbl)         |       | 26.13                                                                      |       | 20.57        |       | 5.56                               |       | 27 | % |
| Crude oil and  condensate ($ per Bbl)(2) |       | 57.50                                                                      |       | 59.53        |       | (2.03                              | )          | (3 | )% |
| Natural gas  equivalent ($ per Mcfe)(2)  |       | 6.85                                                                       |       | 7.63         |       | (0.78                              | )          | (10 | )% |
| Natural gas  equivalent ($ per Mcfe)(3)  |       | 4.00                                                                       |       | 8.11         |       | (4.11                              | )          | (51 | )% |
| **Operating Revenue:**                        | ** ** | ** **                                                                 | ** ** | ** **   | ** ** | ** **                         | ** ** | ** ** | ** ** |
| Natural gas (2)                               |       | $                                                                          | 30,267     |         | $          | 26,473                             |       | $ | 3,794 |   | 14 | % |
| Natural gas  liquids                          |       | 2,574                                                                      |       | 1,245        |       | 1,329                              |       | 107 | % |
| Crude oil and  condensate (2)                 |       | 6,373                                                                      |       | 5,177        |       | 1,196                              |       | 23 | % |
| Gain (loss) on  derivatives                   |       | (16,331                                                                    | )          | 2,099        |       | (18,430                            | )          | * |   |
| Total revenue                                 |       | $                                                                          | 22,883     |         | $          | 34,994                             |       | $ | (12,111 | ) | (35 | )% |

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(1)             Pricesare calculated based on whole numbers, not rounded numbers.

(2)             Excludesthe effect of derivative transactions.

(3)             Includesthe effect of derivative transactions.

*                    Notmeaningful.

 

**Averagesales price** -Our sales revenue is sensitive to thevolatility of commodity prices.  A substantial portion of our production issold at prevailing market prices, which fluctuate in response to many factorsthat are outside of our control. Imbalances in the supply and demand for oiland natural gas can have a dramatic effect on the prices we receive for our production.Political instability and availability of alternative fuels could impactworldwide supply, while the economy, weather and other factors outside of ourcontrol could impact demand.

**Naturalgas revenue** -For the three months ended March 31, 2007, natural gas revenue, excludingderivative activity, increased 14% over the same period in 2006 due to 30%higher production volumes partially offset by 12% lower commodity prices. Theoverall increase in production compared to the prior year period resulted in anincrease in revenue of approximately $8.0 million (based on 2006 comparableperiod pre-hedge prices). The increase in production was primarily the resultof new wells drilled and acquired during 2006 (including the additionalinterest in our Chapman Ranch Field acquired late in 2006) and the acquisitionof the Smith assets on January 31, 2007. The decrease in average price receivedresulted in decreased revenue of approximately $4.2 million (based on currentperiod production).

**Naturalgas liquids (“NGL”) revenue** - For the three months ended March 31, 2007, NGLrevenue increased 107% over the same period in 2006 due primarily to anincrease in prices realized and production volumes. This price increaseresulted in an increase in revenue of approximately $0.5 million (based oncurrent period production).  NGL volumeswere also higher during the three months ended March 31, 2007 as compared tothe same period in 2006 as a result of new wells drilled and acquired during2006 (including the additional interest in our Chapman Ranch Field acquiredlate in 2006) and the acquisition of the Smith assets on January 31, 2007. Theincrease in NGL production increased revenue by approximately $0.8 million(based on 2006 comparable period average prices).

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**Crude oiland condensate revenue******- Forthe three months ended March 31, 2007, oil and condensate sales revenue,excluding derivative activity, increased 23% from the comparable period in2006, due primarily to the 28% increase in volume, partially offset by a 3%decline in prices realized. Production volumes for oil and condensate increasedfor the three months ended March 31, 2007 compared to the same prior yearperiod, due primarily to new wells drilled and acquired during 2006 (includingthe additional interest in our Chapman Ranch Field acquired late in 2006) andthe acquisition of the Smith assets on January 31, 2007. The increase in oiland condensate production resulted in an increase in revenue of approximately$1.4 million (based on 2006 comparable period pre-hedge prices). The decreasedaverage realized price for oil and condensate for the three months ended March31, 2007 resulted in a decrease in revenue of approximately $0.2 million (basedon current period production).

**Derivatives** - For the three months ended March 31,2007, we recorded a net loss on derivative contracts as compared to a net gainin the same period in 2006. The volume and price contract terms vary fromperiod to period and therefore interact differently with the changing pricingenvironment, which may affect the comparability of the results for each period.While we are unable to predict the market prices, we enter into contracts thatwe expect will protect us in the event of significant downturns in the market,which proved to be a benefit to us in the first three months of 2007 with cashsettlement inflows from our hedge counterparties to offset the lower pricesreceived for our physical production. In both periods, we appliedmark-to-market accounting treatment to our derivative contracts; therefore thefull volatility of the non-cash change in fair value of our outstandingcontracts is reflected in revenue. The following table summarizes the variouscomponents of the total gain/(loss) on derivatives and the impact eachcomponent had on our realized prices.
| ** **                                                                                                  | ** ** | **Three Months Ended March 31,**                | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                                                                                  | ** ** | **2007**                                                            | ** ** | **2006** | ** ** |
| ** **                                                                                                  | ** ** | **$**                                                               | ** ** | **$ per unit(1)** | ** ** | **$** | ** ** | **$ per unit(1)** | ** ** |
| ** **                                                                                                  | ** ** | **(in thousands, except per unit prices)** | ** ** |
| Natural gas derivative  contract settlements (Mcf)                                                          |       | $                                                                   | 569        |   | $ | 0.13 |   | $ | 319 |   | $ | 0.09 |   |
| Crude oil  derivative contract settlements (Bbl)                                                            |       | 843                                                                 |       | 7.61 |   | — |   | — |   |
| Mark-to-market  reversal of prior period unrealized change in fair value of gas derivative  contracts (Mcf) |       | (4,686                                                              | )          | (1.05 | ) | — |   | — |   |
| Mark-to-market  unrealized change in fair value of gas derivative contracts (Mcf)                           |       | (10,786                                                             | )          | (2.42 | ) | 2,010 |   | 0.59 |   |
| Mark-to-market  reversal of prior period unrealized change in fair value of oil derivative  contracts (Bbl) |       | (501                                                                | )          | (4.52 | ) | (17 | ) | (0.20 | ) |
| Mark-to-market  unrealized change in fair value of oil derivative contracts (Bbl)                           |       | (1,770                                                              | )          | (15.97 | ) | (213 | ) | (2.45 | ) |
| Gain (loss) on derivatives (Mcfe)                                                                           |       | $                                                                   | (16,331    | ) | $ | (2.85 | ) | $ | 2,099 |   | $ | 0.48 |   |

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(1)             Pricesper unit are calculated based on whole numbers, not rounded numbers.

Should commodityprices decrease from the current levels, our unhedged revenues could bematerially affected.

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**Costs and Operating Expenses**

Thetable below details our expenses:
| ** **                                            | ** ** | ** **                                            | ** ** | **2007 Period Compared** | ** ** |
|-------------------------------------------------------|------------|-------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                            | ** ** | ** **                                            | ** ** | **to 2006 Period**       | ** ** |
| ** **                                            | ** ** | **Three Months Ended**                      | ** ** | **$**                              | ** ** | **%** | ** ** |
| ** **                                            | ** ** | **March 31,**                                    | ** ** | **Increase**                       | ** ** | **Increase** | ** ** |
| ** **                                            | ** ** | **2007**                                              | ** ** | **2006**                           | ** ** | **(Decrease)** | ** ** | **(Decrease)** | ** ** |
| ** **                                            | ** ** | **(in thousands, except percentages)** | ** ** |
| Oil and natural gas  operating expenses               |       | $                                                     | 3,380      |                               | $          | 2,189 |   | $ | 1,191 |   | 54 | % |
| Severance and ad  valorem taxes                       |       | 2,311                                                 |       | 2,589                              |       | (278 | ) | (11 | )% |
| Depletion,  depreciation, amortization and accretion: |       |                                                  |       |                               |       |   |   |   |   |
| Oil and gas  property and equipment                   |       | 18,370                                                |       | 15,675                             |       | 2,695 |   | 17 | % |
| Other assets                                          |       | 108                                                   |       | 74                                 |       | 34 |   | 46 | % |
| ARO accretion                                         |       | 64                                                    |       | 44                                 |       | 20 |   | 45 | % |
| General and  administrative expenses                  |       | 4,395                                                 |       | 3,124                              |       | 1,271 |   | 41 | % |
| Total operating  expenses                             |       | $                                                     | 28,628     |                               | $          | 23,695 |   | $ | 4,933 |   | 21 | % |
| Other income and  expense, net                        |       | 2,958                                                 |       | 672                                |       | 2,286 |   | * |   |
| Income tax benefit  (expense)                         |       | 2,935                                                 |       | (3,735                             | )          | 6,670 |   | * |   |
| Preferred stock  dividends                            |       | 1,381                                                 |       | —                             |       | 1,381 |   | * |   |
|                                                       |            |                                                       |            |                                    |            |  |  |  |  |  |  |  |  |  |

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*                    Notmeaningful

**Oil andnatural gas operating expenses** - For the three months ended March 31, 2007,operating expenses increased 54% from the same period of 2006.  The acquisition of the Smith assets onJanuary 31, 2007 accounted for approximately 86% of the increase in costs. Wealso had added costs in 2007 for the new wells drilled and acquired during2006, including the Chapman Ranch Field properties acquired in December 2006.Average oil and natural gas operating expenses were $0.59 per Mcfe and $0.51per Mcfe for the three months ended March 31, 2007 and 2006, respectively.

**Severance and ad valorem taxes**- For the three months ended March 31, 2007, severance and ad valorem taxesdecreased 11% from the first quarter of 2006. Severance tax expense for the three months ended March 31, 2007 was 31%lower than the prior year period as a result of significant abatements receivedduring the first quarter of 2007 that related to prior year periods.  Our severance tax expense is levied on ouroil and gas revenue (excluding derivative activity). For the three months endedMarch 31, 2007, severance tax expense was approximately 3.3% of revenue subjectto severance taxes compared to 5.8% of revenue subject to severance taxes forthe first quarter of 2006. Ad valorem tax expense for the first quarter of 2007was impacted by the addition of the Chapman Ranch properties acquired inDecember 2006 and the Smith assets acquired in January 2007, as well asincreases in estimated costs from the taxing authorities. On an equivalentbasis, severance and ad valorem taxes averaged $0.40 per Mcfe and $0.60 perMcfe for the three months ended March 31, 2007 and 2006, respectively.

**Depletion, depreciation, and amortization (“DD&A”)and accretion**- DD&A and accretion expense for thethree months ended March 31, 2007 totaled $18.5 million compared to $15.8million for the same period in 2006. Depletion expense on our oil and naturalgas properties continues to increase due to increases in production volumes.The increase in depletion expense from the higher production levels in thefirst quarter of 2007 as compared to the same period of 2006 resulted in anincrease in expense of approximately $5.1 million. Our depletion rate hasincreased since year-end 2006 due to the addition of the Smith assets duringthe first quarter of 2007, but the depletion rate decreased from $3.63 per Mcfein the first quarter 2006 to $3.21 per Mcfe in the first quarter of 2007,resulting in a $2.4 million decrease in depletion expense. The rate decreasedas a result of the full cost ceiling test impairment reported during the thirdquarter of 2006. Depreciation of furniture and fixtures for the first quarterof 2007 includes additional expense related to certain assets that wereacquired in the Smith 

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Acquisition.Accretion expense associated with our asset retirement obligations for thethree months ended March 31, 2007 increased 45% over the first quarter of 2006for the new obligations incurred from the wells drilled and acquired sinceMarch 31, 2006 and the acquisition of the Smith assets in the firstquarter of 2007.

**General and administrative (“G&A”) expenses**- Approximately 60% of the 41% increase in G&A expense from the firstquarter of 2006 to the first quarter of 2007 is primarily the result ofincreasing our staffing levels since March 31, 2006. We have added 12 newemployees over the last several months as a result of our continued growth.Approximately 30% of the increase in G&A expense is attributable toamortization related to restricted stock awards granted over the past threeyears, which has increased from $0.4 million in the first quarter of 2006 to $0.7million in the first quarter of 2007 as a result of new grants that haveoccurred since the first quarter of 2006. We also had an increase in legalcosts of $0.3 million associated with outstanding litigation and franchisetaxes of $0.1 million. The cost increases were partially offset by decreases ingeneral office expenses, increased capitalized G&A and overheadreimbursement fees (which reduce total G&A costs). Capitalized G&Acosts for first quarter 2007 were $1.0 million as compared to $0.8 million for thecomparable prior year period. G&A on a unit-of-production basis for thethree months ended March 31, 2007 was $0.77 per Mcfe compared to $0.72 per Mcfefor the comparable 2006 period. G&A, excluding non-cash share-basedcompensation costs, for the three months ended March 31, 2007 averaged $0.65per Mcfe compared to $0.63 per Mcfe in the same period in 2006.

**Otherincome and expense** - During the three months ended March 31, 2007, our other income andexpense increased primarily due to an increase in gross interest expense, whichwas partially offset by an increase in interest income and capitalizedinterest. For the first quarter of 2007, 43% of our gross interest expense wascapitalized, as compared to 58% in the same 2006 period. We calculate the amountof interest we can capitalize based on the comparison of our unproved propertycosts and our weighted average debt balance. We also incurred higher grossinterest costs for the three months ended March 31, 2007 than for the sameperiod of 2006 due to higher outstanding debt balances and commitment fees of$1.3 million paid to our lender for the unused bridge loan facility.

|                             | ** ** | **Three Months Ended March 31,** | ** ** |
|-----------------------------|------------|------------------------------------------------------|------------|
| ** **                  | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                  | ** ** | **(in thousands)**                              | ** ** |
| Gross interest expense      |       | $                                                    | 4,859      |   | $ | 1,607 |   |
| Less: capitalized  interest |       | (2,097                                               | )          | (939 | ) |
| Interest expense, net       |       | $                                                    | 2,762      |   | $ | 668 |   |
| Weighted average debt       |       | $                                                    | 198,511    |   | $ | 93,400 |   |

 

We also recordedamortization of deferred loan costs related to our Prior Credit Facility andRevolving Facility during the three months ended March 31, 2007. These costswere higher than 2006 due to the termination of the Prior Credit Facility andthe higher costs associated with the new Revolving Facility compared to thePrior Credit Facility. Interest income earned on our outstanding daily cashbalances during the three months ended March 31, 2007 was 50% higher than in2006 due to increased cash balances and minor changes to the interest rateearned.

**Incometax benefit (expense)** - An income tax benefit of $2.9 million was recorded for the threemonths ended March 31, 2007, whereas in 2006 we recorded income tax expense of$3.7 million for the comparable period. The income tax benefit as of March 31,2007 resulted primarily from the unrealized losses on derivatives, which createda net loss for the first quarter of 2007. There has not been a substantial change to our effective income tax ratesince the first quarter of 2006.

**Preferredstock dividends**- Our Board of Directors declared our first dividend on our 5.75% Series Acumulative convertible perpetual preferred stock in March 2007. They were paidApril 15, 2007 to preferred stockholders of record at the close of business onApril 1, 2007. The preferred stock was issued in connection with a publicoffering in January 2007, therefore no comparable dividends were paid in 2006.

**Earnings per share** - For thethree months ended March 31, 2007, earnings per share decreased in comparisonto the same period in 2006, mainly as a result of the net loss in the firstquarter of 2007. Basic weighted average shares outstanding for the three monthsended March 31, 2007 increased significantly as a result of the 

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public offering ofcommon stock that was completed in January 2007. We issued a total of 10.9million shares of common stock. We also issued 2.9 million shares of 5.75%Series A cumulative perpetual preferred stock, which if converted atMarch 31, 2007, would have a dilutive effect of 8.7 million shares ofcommon stock. Due to the fact that we are reporting a net loss for the quarter,the 9.0 million shares of if-converted common shares and exercisable stockoptions are excluded due to their anti-dilutive effect on earnings per share.

## **Liquidity and Capital Resources**

Ourprimary ongoing source of capital is the cash flow generated from our operatingactivities supplemented by borrowings under our credit facility. Net cashgenerated from operating activities is a function of production volumes andcommodity prices, both of which are inherently volatile and unpredictable, aswell as operating efficiency and costs. Our business, as with other extractivebusinesses, is a depleting one in which each gas equivalent unit produced mustbe replaced or our asset base and capacity to generate revenues in the futurewill shrink. Our overall expected future production decline is estimated to beapproximately 22% per year. Less predictable than production declines from ourproved reserves is the impact of constantly changing oil and natural gas priceson cash flows.  We attempt to mitigatethe price risk with our hedging program. Reserves and production volumes areinfluenced, in part, by the amount of future capital expenditures. In turn,capital expenditures are influenced by many factors including drilling results,oil and gas prices, industry conditions, prices, availability of goods andservices and the extent to which oil and gas properties are acquired.

Ourprimary cash requirements are for exploration, development and acquisition ofoil and gas properties, and the repayment of principal and interest onoutstanding debt. We attempt to fund our exploration and development activitiesprimarily through internally generated cash flows and budget capitalexpenditures based on projected cash flows. We routinely adjust capitalexpenditures in response to changes in oil and natural gas prices, drilling andacquisition costs, and cash flow. We have historically used our credit facilityto supplement any deficiencies between operating cash flow and capitalexpenditures. We typically have funded acquisitions from borrowings under ourcredit facility, cash flow from operations and sales of stock.

We had $240.0million of total borrowings outstanding under our Revolving Facility at March31, 2007. Our Revolving Facility matures on January 31, 2011. We have receivedsignificant funds through equity transactions in the past, including throughofferings of our common stock and preferred stock and the exercise of warrantsand stock options. We typically do not, however, rely on proceeds from theexercise of warrants and stock options to sustain our business, as the timingof those proceeds is unpredictable.

Significantchanges to working capital may affect our liquidity in the short term. Priceincreases since year-end and the acquisition of the Smith assets contributed tothe large increase in Accounts Receivable, Trade. We also had a significantincrease in outstanding debt which resulted in the increase in interest payableat March 31, 2007. The Smith Acquisition was the largest in our history andtherefore has had and will continue to have a significant impact on ourliquidity. The change in our derivative instruments from a net asset atDecember 31, 2006 to a net liability at March 31, 2007 is indicative ofpotential future cash payments on our outstanding derivative positions, whichare scheduled to settle in future months. When our derivative financialinstruments require us to pay a cash settlement, we are receiving higher cashinflows on the sale of unhedged production at higher prices, providing us withfunds needed to cover settlements when they come due.

After considering the impact of these working capitalchanges and our forecasts of future results of operations, we believe that cashflows from operating activities, as supplemented by borrowings under our RevolvingFacility, combined with our ability to control the timing of certain of ourfuture exploration and development requirements, will provide us with theflexibility and liquidity to meet our planned capital requirements for 2007.   As of March 31, 2007, we have $80.0 millionin unused borrowing capacity under our Revolving Facility.

We had cash and cash equivalents at March 31, 2007 of$4.0 million consisting primarily of short-term money market investments, ascompared to $2.1 million at December 31, 2006. Working capital was $17.2 million as of March 31, 2007, as compared to$10.2 million at December 31, 2006. Our sources and uses of cash were asfollows:

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|                                              | ** ** | **For the Three Months Ended March 31,** | ** ** |
|----------------------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                                   | ** ** | **2007**                                                               | ** ** | **2006** | ** ** |
| ** **                                   | ** ** | **(in thousands)**                                                | ** ** |
| *Net Cash Provided By Operating  Activities* |       | $                                                                      | 14,908     |   | $ | 25,066 |   |
| *Net  Cash Used In Investing Activities*     |       | (396,970                                                               | )          | (39,025 | ) |
| *Net Cash Provided by Financing Activities*  |       | 384,008                                                                |       | 15,562 |   |
|                                              |            |                                                                        |            |  |  |  |  |

 

**Net Cash Provided ByOperating Activities***-*The decrease in cash flows provided by operating activities for thefirst quarter of 2007 as compared the same period in 2006 is primarilyattributable to changes in our working capital. The most significant was theincrease in trade accounts receivable due to the acquisition of the Smithassets. Cash flows provided by operating activities before changes in workingcapital were actually higher in 2007 than in 2006 as a result of higher cashrevenues, partially offset by higher cash operating costs.

**Net Cash Used InInvesting Activities***-*Wereinvest a substantial portion of our cash flows from operating activities inour drilling, acquisition, land and geophysical activities.  During the first quarter of 2007, our largestexpenditure was the Smith Acquisition. We also spent $12.3 million on ourdrilling and operating program and $4.6 million on leasehold and geological andgeophysical activities. The remaining capital expenditures were associated withcomputer hardware, office equipment and other miscellaneous capital charges.Proceeds from the sale of an interest in one of our Louisiana oil and gasproperties totaled $1.1 million. During the first quarter of 2006, we spent$36.5 million on our drilling and operating program, which entailed moreactivity than the first quarter of 2007 since we were focused on the SmithAcquisition in the 2007 period. We also spent $3.6 million on leaseholdacquisitions, including seismic data and other geological and geophysicalexpenditures, for the three months ended March 31, 2006. The remaining capitalexpenditures were associated with computer hardware and office equipment andother miscellaneous capital charges. Proceeds from the sale of oil and gasproperties totaled $60,000 during the three months ended March 31, 2006, whichrepresented a deposit for the divestiture of the Buckeye properties whichclosed later in 2006.

Due to our active exploration,development and acquisition activities, we have experienced, and expect tocontinue to experience, substantial working capital requirements. We currentlyanticipate capital expenditures in 2007 to be approximately $140 million.Approximately $111.0 million is allocated to our expected drilling andproduction activities; $21.0 million is allocated to land, legal and seismicactivities; and $8.0 million relates to capitalized interest, G&A andother. We intend to fund these capital expenditures, and other commitments andworking capital requirements with expected cash flow from operations and, tothe extent necessary, other sources. Should there be a change in our pricing orproduction assumptions, we believe that we have sufficient financialflexibility from other financing sources to meet our financial obligations asthey come due, and we would recommend to our Board an adjustment to our capitalexpenditures program accordingly so as to avoid unnecessary incrementalborrowings that may be needed for acquisitions. We do not explicitly budget foracquisitions; however, we do expect to spend considerable effort evaluatingacquisition opportunities. We expect to fund acquisitions through traditionalreserve-based bank debt and/or the issuance of equity and, if required, throughadditional debt and equity financings.

**Net Cash Provided ByFinancing Activities***-*During the three months ended March 31, 2007, our net borrowingsunder our Revolving Facility (as defined below) were $111.0 million due to theclosing of the Smith Acquisition. We also incurred deferred loan costs relatedto the Revolving Facility. We received $276.6 million in proceeds from the issuanceof common stock and preferred stock in our public offerings completed topartially finance the Smith Acquisition.

Weexpect to utilize our Revolving Facility to supplement timing differences inour projected cash inflows and outflows and smaller acquisitions. We also haveapproximately $101.5 million available under our current shelf registrationstatement for larger acquisitions. We believe we will be able to generatecapital resources and liquidity sufficient to meet our financial obligations asthey come due.

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*Prior CreditFacility & Revolving Facility*

On January 30, 2007, weterminated our Third Amended and Restated Credit Agreement (the “Prior CreditFacility”), which we had originally entered into in March 2004 (effectiveDecember 31, 2003). The Prior Credit Facility was scheduled to mature on March31, 2008 and had a borrowing base of $140.0 million, of which $129.0 millionwas outstanding as of January 30, 2007.

On January 30, 2007, wealso entered into a Fourth Amended and Restated Credit Agreement (the “Agreement”)for a new Revolving Credit Facility with Union Bank of California (“UBOC”), asadministrative agent and issuing lender, and the other lenders party thereto.Pursuant  to the Agreement, UBOC will act as the administrative agent fora senior, first lien secured borrowing base revolving credit facility (the “RevolvingFacility”) in favor of the Company and certain of its wholly-owned subsidiariesin an amount equal to $750 million, of which only $320 million was availableunder the borrowing base established at the closing. The Revolving Facility hasa letter of credit sub-limit of $20 million. In connection with the RevolvingFacility, we paid the lenders fees in an amount equal to 1.00% of the initialborrowing base established under the Revolving Facility, or $3.2 million, onJanuary 31, 2007.  We also paid approximately $0.5 million for certainother administrative fees, legal fees, fronting fees and work fees inconnection with the Revolving Facility. The aggregate fees of $3.7 million (of which$0.1 million was paid in December 2006) were recorded to deferred loan costsand are being amortized over the maturity of the Revolving Facility.

The Revolving Facilitymatures on January 31, 2011 and bears interest at LIBOR plus an applicablemargin ranging from 1.25% to 2.5% or Prime plus a margin of up to 0.25%, withan unused commitment fee ranging from 0.50% to 0.25%. At March 31, 2007 theinterest rates applied to our outstanding Prime and LIBOR borrowings were 8.25%and 7.10%, respectively. As of March 31, 2007, $240.0 million in totalborrowings were outstanding under the Revolving Facility. Our availableborrowing capacity under the Revolving Facility was $80.0 million at March 31,2007 and $90.0 million at April 30, 2007. The borrowing base is currently being redetermined by the lender and weexpect to be notified of any changes during the second quarter of 2007.

The Revolving Facility issecured by substantially all of our assets. The Revolving Facility provides forcertain restrictions, including, but not limited to, limitations on additionalborrowings, sales of oil and natural gas properties or other collateral, andengaging in merger or consolidation transactions. The Revolving Facilityrestricts dividends and certain distributions of cash or properties and certainliens and also contains financial covenants including, without limitation, thefollowing:

·                  An EBITDAXto interest expense ratio requires that as of the last day of each fiscalquarter the ratio of (a) Edge’s consolidated EBITDAX (defined as EBITDA plussimilar non-cash items and exploration and abandonment expenses for suchperiod) to (b) Edge’s consolidated interest expense, not be less than 2.5 to1.0, calculated on a cumulative quarterly basis for the first 12 months afterthe closing of the Revolving Facility and then on a rolling four quarter basis.

·                  A currentratio requires that as of the last day of each fiscal quarter the ratio of Edge’sconsolidated current assets to Edge’s consolidated current liabilities, asdefined in the Revolving Facility, be at least 1.0 to 1.0.

·                  A maximumleverage ratio requires that as of the last day of each fiscal quarter theratio of (a) Total Indebtedness (as defined in the Revolving Facility) to (b)an amount equal to consolidated EBITDAX be not greater than 3.0 to 1.0,calculated on a cumulative quarterly basis for the first 12 months after theclosing of the Revolving Facility and then on a rolling four quarter basis.

Consolidated EBITDAX is acomponent of negotiated covenants with our lender and is discussed here as partof the Company’s disclosure of its covenant obligations. The Revolving Facilityincludes other covenants and events of default that are customary for similarfacilities.

In December 2006, UBOC provided us a commitment letterfor a $250 million senior, second lien secured bridge loan facility (the “BridgeLoan Facility”). The Bridge Loan Facility, along with the Revolving Facility,were intended to replace our Prior Credit Facility and to fund the closing ofthe Smith Acquisition (see Note 9) if we were 

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unable to complete one orboth of our intended public offerings. Due to the successful completion of thepublic offering of common stock and 5.75% Series A cumulative convertibleperpetual preferred stock on January 30, 2007, we did not enter into the BridgeLoan Facility. We paid an amount equal to 0.50% of the commitment under theBridge Loan Facility, or $1.3 million, on January 31, 2007, which is includedin interest expense.

*Shelf RegistrationStatement & Offerings*

During the second quarter2005, we filed a registration statement with the SEC which registered offeringsof up to $390 million of any combination of debt securities, preferred stock,common stock or warrants for debt securities or equity securities of theCompany. Net proceeds, terms and pricing of the offering of securities issuedunder the shelf registration statement will be determined at the time of theofferings. The shelf registration statement does not provide assurance that wewill or could sell any such securities. Our ability to utilize our shelfregistration statement for the purpose of issuing, from time to time, anycombination of debt securities, preferred stock, common stock or warrants fordebt securities or equity securities will depend upon, among other things,market conditions and the existence of investors who wish to purchase oursecurities at prices acceptable to us.

In January 2007, wecompleted an offering of 10.925 million shares of our common stock and 2.875million shares of 5.75% Series A cumulative convertible perpetual preferredstock. The shares were offered to the public at a price of $13.25 per share ofcommon stock and $50.00 per share of preferred stock. We received net proceedsof approximately $276.6 million from the offerings ($138.1 million from thecommon offering and $138.5 from the preferred offering), after deductingunderwriting discounts and commissions and the expenses of the offerings. As aresult of the offerings, we had approximately $101.5 million remainingavailable under our 2005 shelf registration statement as of March 31, 2007.

*ConvertiblePreferred Stock*

As noted above, wecompleted the public offering of 2,875,000 shares of our 5.75% Series Acumulative convertible perpetual preferred stock (“Convertible Preferred Stock”)in January 2007.  We used the $138.5million in net proceeds from this offering, along with the proceeds from theconcurrent common stock offering and along with borrowings under our RevolvingFacility, to finance the Smith Acquisition and to refinance our Prior CreditFacility.

*Dividends*.  The Convertible Preferred Stock accumulatesdividends at a rate of $2.875 for each share of Convertible Preferred Stock peryear. Dividends are cumulative from the date of first issuance and, to theextent payment of dividends is not prohibited by our debt agreements, assetsare legally available to pay dividends and our board of directors or anauthorized committee of our board declares a dividend payable, we will paydividends in cash, every quarter. The first payment was made on April 15, 2007.

Nodividends or other distributions (other than a dividend payable solely inshares of a like or junior ranking) may be paid or set apart for payment uponany shares ranking equally with the Convertible Preferred Stock (“parity shares”)or shares ranking junior to the Convertible Preferred Stock (“junior shares”),nor may any parity shares or junior shares be redeemed or acquired for anyconsideration by us (except by conversion into or exchange for shares of a likeor junior ranking) unless all accumulated and unpaid dividends have been paidor funds therefore have been set apart on the Convertible Preferred Stock andany parity shares.

*Liquidationpreference*. In the event of our voluntary or involuntary liquidation, winding-up ordissolution, each holder of Convertible Preferred Stock will be entitled toreceive and to be paid out of our assets available for distribution to ourstockholders, before any payment or distribution is made to holders of juniorstock (including common stock), but after any distribution on any of ourindebtedness or senior stock, a liquidation preference in the amount of $50.00per share of the Convertible Preferred Stock, plus accumulated and unpaiddividends on the shares to the date fixed for liquidation, winding-up ordissolution.

*Ranking*.  Our Convertible Preferred Stock ranks:

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·                  seniorto all of the shares of our common stock and to all of our other capital stockissued in the future unless the terms of such capital stock expressly providethat it ranks senior to, or on a parity with, shares of our ConvertiblePreferred Stock;

·                  ona parity with all of our other capital stock issued in the future the terms ofwhich expressly provide that it will rank on a parity with the shares of ourConvertible Preferred Stock; and

·                  juniorto all of our existing and future debt obligations and to all shares of ourcapital stock issued in the future, the terms of which expressly provide thatsuch shares will rank senior to the shares of our Convertible Preferred Stock.

*Mandatoryconversion*. On or after January 20, 2010, we may,at our option, cause shares of our Convertible Preferred Stock to beautomatically converted at the applicable conversion rate, but only if theclosing sale price of our common stock for 20 trading days within a period of30 consecutive trading days ending on the trading day immediately preceding thedate we give the conversion notice equals or exceeds 130% of the conversionprice in effect on each such trading day.

*Optionalredemption*. If fewer than 15% of the shares ofConvertible Preferred Stock issued in the Convertible Preferred Stock offering(including any additional shares issued pursuant to the underwriters’over-allotment option) are outstanding, we may, at any time on or after January 20,2010, at our option, redeem for cash all such Convertible Preferred Stock at aredemption price equal to the liquidation preference of $50.00 plus any accruedand unpaid dividends, if any, on a share of Convertible Preferred Stock to, butexcluding, the redemption date, for each share of Convertible Preferred Stock.

*Conversionrights*. Each share of Convertible Preferred Stock may be convertedat any time, at the option of the holder, into approximately 3.0193 shares ofour common stock (which is based on an initial conversion price of $16.56 pershare of common stock, subject to adjustment) plus cash in lieu of fractionalshares, subject to our right to settle all or a portion of any such conversionin cash or shares of our common stock. If we elect to settle all or any portionof our conversion obligation in cash, the conversion value and the number ofshares of our common stock we will deliver upon conversion (if any) will bebased upon a 20 trading day averaging period.

Uponany conversion, the holder will not receive any cash payment representingaccumulated and unpaid dividends on the Convertible Preferred Stock, whether ornot in arrears, except in limited circumstances. The conversion rate is equalto $50.00 divided by the conversion price at the time. The conversion price issubject to adjustment upon the occurrence of certain events. The conversionprice on the conversion date and the number of shares of our common stock, asapplicable, to be delivered upon conversion may be adjusted if certain eventsoccur.

*Purchaseupon fundamental change*. If we become subject to afundamental change (as defined herein), each holder of shares of ConvertiblePreferred Stock will have the right to require us to purchase any or all of itsshares at a purchase price equal to 100% of the liquidation preference, plusaccumulated and unpaid dividends, to the date of the purchase. We will have theoption to pay the purchase price in cash, shares of common stock or acombination of cash and shares. Our ability to purchase all or a portion of theConvertible Preferred Stock for cash is subject to our obligation to repay orrepurchase any outstanding debt required to be repaid or repurchased inconnection with a fundamental change and to any contractual restrictions thencontained in our debt.

*Conversionin connection with a fundamental change*. If aholder elects to convert its shares of our Convertible Preferred Stock inconnection with certain fundamental changes, we will in certain circumstancesincrease the conversion rate for such Convertible Preferred Stock. Upon aconversion in connection with a fundamental change, the holder will be entitledto receive a cash payment for all accumulated and unpaid dividends.

A“fundamental change” will be deemed to have occurred upon the occurrence of anyof the following:

1. a “person” or “group” subject to specifiedexceptions, disclosing that the person or group has become the direct orindirect ultimate “beneficial owner” of our common equity representing morethan 50% of the voting power of our common equity other than a filing with adisclosure relating to a transaction which complies with the provision insubsection 2 below;

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2. consummation of any share exchange, consolidationor merger of us pursuant to which our common stock will be converted into cash,securities or other property or any sale, lease or other transfer in onetransaction or a series of transactions of all or substantially all of theconsolidated assets of us and our subsidiaries, taken as a whole, to any personother than one of our subsidiaries; provided, however, that a transaction wherethe holders of more than 50% of all classes of our common equity immediatelyprior to the transaction own, directly or indirectly, more than 50% of allclasses of common equity of the continuing or surviving corporation ortransferee immediately after the event shall not be a fundamental change;

3. we are liquidated or dissolved or holders of ourcapital stock approve any plan or proposal for our liquidation or dissolution; or

4. our common stock is neither listed on a nationalsecurities exchange nor listed nor approved for quotation on anover-the-counter market in the United States.

However,a fundamental change will not be deemed to have occurred in the case of a shareexchange, merger or consolidation, or in an exchange offer having the resultdescribed in subsection 1 above, if 90% or more of the consideration in theaggregate paid for common stock (and excluding cash payments for fractionalshares and cash payments pursuant to dissenters’ appraisal rights) in the shareexchange, merger or consolidation or exchange offer consists of common stock ofa United States company traded on a national securities exchange (or which willbe so traded or quoted when issued or exchanged in connection with suchtransaction).

*Votingrights*. If we fail to pay dividends for six quarterlydividend periods (whether or not consecutive) or if we fail to pay the purchaseprice on the purchase date for the Convertible Preferred Stock following afundamental change, holders of our Convertible Preferred Stock will have votingrights to elect two directors to our board.

Inaddition, we may generally not, without the approval of the holders of at least66 2/3% of the shares of our Convertible Preferred Stock then outstanding:

·                  amendour restated certificate of incorporation, as amended, by merger or otherwise,if the amendment would alter or change the powers, preferences, privileges orrights of the holders of shares of our Convertible Preferred Stock so as toadversely affect them;

·                  issue,authorize or increase the authorized amount of, or issue or authorize anyobligation or security convertible into or evidencing a right to purchase, anysenior stock; or

·                  reclassifyany of our authorized stock into any senior stock of any class, or anyobligation or security convertible into or evidencing a right to purchase anysenior stock.

*Off Balance Sheet Arrangements*

We currently do not haveany off balance sheet arrangements.

**RiskManagement Activities — Derivatives & Hedging**

Dueto the volatility of oil and natural gas prices, we periodically enter intoprice-risk management transactions (e.g., swaps, collars and floors) for aportion of our oil and natural gas production to achieve a more predictablecash flow, as well as to reduce exposure from commodity pricefluctuations.  While the use of thesearrangements limits our ability to benefit from increases in the price of oiland natural gas, it also reduces our potential exposure to adverse pricemovements. Our arrangements, to the extent we enter into any, apply to only aportion of our production, provide only partial price protection againstdeclines in oil and natural gas prices and limit our potential gains fromfuture increases in prices. None of these instruments are used for tradingpurposes. The use of derivative instruments involves the risk that thecounterparties to such instruments will be unable to meet the financialobligations of such contracts. On a quarterly basis, our management reviews allof our price-risk management policies, including volumes, types of instrumentsand counterparties. These policies are implemented by management through theexecution of trades by the Chief Financial Officer after consultation andconcurrence by 

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the President andChairman of the Board.  Our Board ofDirectors monitors our price-risk management policies and trades on a monthlybasis.

Allof these price-risk management transactions are considered derivativeinstruments and accounted for in accordance with SFAS No. 133, *Accounting for Derivative Instruments and HedgingActivities*(as amended)*.* These derivative instruments areintended to hedge our price risk and may be considered hedges for economicpurposes. There are two types of accounting treatments for derivatives, (i)mark-to-market accounting and (ii) cash flow hedge accounting. For discussionof these accounting treatments, see Note 8 to our consolidated financialstatements.  We currently applymark-to-market accounting treatment to all of our derivative contracts. Thefollowing table provides additional information regarding our variousderivative transactions that were recorded at fair value on the balance sheetas of March 31, 2007.
| ** **                                                                              | ** ** | **(in thousands)** | ** ** |
|-----------------------------------------------------------------------------------------|------------|-------------------------|------------|
| Fair value of  contracts outstanding at December 31, 2006                               |       | $                       | 5,187      |   |
| Contracts  realized or otherwise settled during the period                              |       | 1,412                   |       |
| Fair value of  new contracts when entered into during 2007:                             |       |                    |       |
| Asset                                                                                   |       | —                  |       |
| Liability                                                                               |       | (15,472                 | )          |
| Changes in fair  values attributable to changes in valuation techniques and assumptions |       | —                  |       |
| Other changes in  fair values                                                           |       | (3,683                  | )          |
| Fair values of  contracts outstanding at March 31, 2007                                 |       | $                       | (12,556    | ) |

 

The following table details the fair value of ourcommodity-based derivative contracts by year of maturity and valuation methodologyas of March 31, 2007.
| ** **                                           | ** ** | **Fair Value of Contracts at March 31, 2007** | ** ** |
|------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| **Source of Fair Value**              | ** ** | **Maturity less  than 1 year**                                    | ** ** | **Maturity  1-3 years** | ** ** | **Maturity  4-5 years** | ** ** | **Maturity in  excess of  5 years** | ** ** | **Total fair  value** | ** ** |
| ** **                                           | ** ** | **(in thousands)**                                                          | ** ** |
| Prices actively  quoted:                             |       | —                                                                           |       | — |   | — |   | — |   | — |   |
| Prices provided  by other external sources:          |       |                                                                             |       |   |   |   |   |   |   |   |   |
| Asset                                                |       | —                                                                           |       | — |   | — |   | — |   | — |   |
| Liability                                            |       | (8,872                                                                           | )          | (3,684 | ) | — |   | — |   | (12,556 | ) |
| Prices based on  models and other valuation methods: |       | —                                                                           |       | — |   | — |   | — |   | — |   |
| Total                                                |       | $                                                                                | (8,872     | ) | $ | (3,684 | ) | $ | — |   | $ | — |   | $ | (12,556 | ) |
|                                                      |            |                                                                                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**TaxMatters**

AtMarch 31, 2007, we had cumulative net operating loss carryforwards (“NOLs”) forfederal income tax purposes of approximately $62.3 million. The estimated NOLspresented herein assume that certain items, primarily intangible drillingcosts, have been written off for tax purposes in the current year. However, wehave not made a final determination if an election will be made to capitalizeall or part of these items for tax purposes in the future.

In June 2006, the FASB issued FIN 48, *Accounting for Uncertainty in Income Taxes, an Interpretation of FASBStatement No. 109*, which clarifies the accounting foruncertainty in income taxes recognized in accordance withSFAS No. 109, *Accounting for IncomeTaxes*. FIN 48 prescribes a benefit recognition model with atwo-step approach, a more-likely-than-not recognition criterion and ameasurement attribute that measures the position as the largest amount of taxbenefit that is greater than 50% likely of being ultimately realized uponultimate settlement. If it is not more likely than not that the benefit will besustained on its technical merits, no benefit will be recorded. FIN 48also requires that the amount of interest expense to be recognized related touncertain tax positions be computed by applying the applicable statutory rateof interest to the difference between the tax position recognized in accordancewith FIN 48 and the amount previously taken or expected to be taken in atax return. We also adopted FASB Staff Position No. FIN 48-1, *Definition of Settlement in FASB Interpretation No. 48* (“FSPFIN 48-1”) as of January 1, 2007, which provides that a company’s tax positionwill be considered settled if the taxing authority has completed itsexamination, the company does not plan to appeal, and it is remote that thetaxing authority would 

41

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reexaminethe tax position in the future.  AtJanuary 1, 2007 we recorded the cumulative effect of the change inaccounting principle as a $534,035 decrease in the opening balance of retainedearnings. We had no reserves prior to adoption at January 1, 2007.  We recognize interest and penalties relatedto unrecognized tax benefits in tax expense. However, we had not accruedinterest or penalties at March 31, 2007.

**RecentlyIssued Accounting Pronouncements**

In February 2007, the FASB issuedSFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities — Including an Amendment ofFAS Statement No. 115*. SFAS No. 159 givescompanies the option of applying at specified election dates fair valueaccounting to certain financial instruments and other items that are notcurrently required to be measured at fair value. If a company chooses to recordeligible items at fair value, the company must report unrealized gains andlosses on those items in earnings at each subsequent reporting date.SFAS No. 159 also prescribes presentation and disclosure requirementsfor assets and liabilities that are measured at fair value pursuant to thisstandard and pursuant to the guidance in SFAS No. 133, *Accounting for Derivative Instruments and Hedging Activities (asamended)*. SFAS No. 159 will be effective for fiscal year2008. As the provisions of SFAS No. 159 are applied prospectively,the impact to the Registrants will depend on the instruments selected for fairvalue measurement at the time of implementation.

In September 2006, the FASB issued SFAS No. 157, *Fair Value Measurements,* which provides guidance for usingfair value to measure assets and liabilities. The standard also gives expanded information about the extent to whichcompanies measure assets and liabilities at fair value, the information used tomeasure fair value, and the effect of fair value measurements on earnings. SFASNo. 157 does not expand the use of fair value in any new circumstances.  SFAS No. 157 establishes a fair valuehierarchy that prioritizes the information used to develop fair valueassumptions.  SFAS No. 157 is effectivefor financial statements issued for fiscal years beginning after November 15,2007.  Early adoption is encouraged.  We are currently assessing the impact, ifany, that SFAS No. 157 will have on our financial statements.

***ITEM3.  QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK***

We are exposed to market risk from changes in interestrates and commodity prices.  We use aRevolving Facility with a floating interest rate. We are not subject to fairvalue risk resulting from changes in our floating interest rates.  The use of floating rate debt instrumentsprovides a benefit due to downward interest rate movements but does not limitus to exposure from future increases in interest rates.  Based on the March 31, 2007 outstandingborrowings and interest rates of 8.25% and 7.10% applied to various borrowings,a 10% change in interest rates would result in an increase or decrease ofinterest expense of approximately $1.6 million on an annual basis.

Inthe normal course of business, we enter into hedging transactions, includingcommodity price collars, swaps and floors, to mitigate our exposure tocommodity price movements, but not for trading or speculative purposes.  Please refer to Note 7 to our consolidatedfinancial statements. While the use of these arrangements may limit the benefitto us of increases in the price of oil and natural gas, it also limits thedownside risk of adverse price movements. The use of derivative instruments also involves the risk that thecounterparties to such instruments will be unable to meet the financialobligations of such contracts.  Thefollowing is a list of contracts outstanding as of March 31, 2007:

 

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| **Transaction Date**   | ** ** | **Transaction  Type** | ** ** | **Beginning** | ** ** | **Ending** | ** ** | **Price  Per Unit** | ** **   | **Volumes Per  Day** | ** **   | **Fair Value  Outstanding as of  March 31, 2007** | ** ** |
|------------------------|------------|-----------------------|------------|---------------|------------|------------|------------|--------------------------|--------------|---------------------------|--------------|----------------------------------------------------------------------------|------------|
| ** **             | ** ** | ** **            | ** ** | ** **    | ** ** | ** ** | ** ** | ** **               | ** **   | ** **                | ** **   | **(in thousands)**                                                         | ** ** |
| ***Natural  Gas(1):*** |       |                  |       |          |       |       |       |                     | * *     | * *                  | * *     |                                                                       | * *   |
| 01/07                  |       | Collar                |       | 02/01/07      |       | 12/31/07   |       | $                        | 7.02-$9.00   |                      | 15,000 MMbtu |                                                                       | $          | (1,342 | ) |
| 01/07                  |       | Collar                |       | 02/01/07      |       | 12/31/07   |       | $                        | 7.00-$9.00   |                      | 15,000 MMbtu |                                                                       | (1,335     | ) |
| 01/07                  |       | Collar                |       | 02/01/07      |       | 12/31/07   |       | $                        | 7.00-$9.00   |                      | 10,000 MMbtu |                                                                       | (910       | ) |
| 01/07                  |       | Collar                |       | 01/01/08      |       | 12/31/08   |       | $                        | 7.50-$9.00   |                      | 20,000 MMbtu |                                                                       | (3,642     | ) |
| 01/07                  |       | Collar                |       | 01/01/08      |       | 12/31/08   |       | $                        | 7.50-$9.00   |                      | 10,000 MMbtu |                                                                       | (1,761     | ) |
| 01/07                  |       | Collar                |       | 01/01/08      |       | 12/31/08   |       | $                        | 7.50-$9.02   |                      | 10,000 MMbtu |                                                                       | (1,796     | ) |
| ***Crude  Oil(2):***   |       |                  |       |          |       |       |       |                     |         |                      |         |                                                                       |       |
| 08/06                  |       | Collar                |       | 01/01/07      |       | 12/31/07   |       | $                        | 70.00-$87.50 |                      | 400 Bbl      |                                                                       | 612        |   |
| 12/06                  |       | Swap                  |       | 01/01/07      |       | 12/31/07   |       | $                        | 66.00        |                      | 600 Bbl      |                                                                       | (350       | ) |
| 12/06                  |       | Swap                  |       | 01/01/08      |       | 12/31/08   |       | $                        | 66.00        |                      | 1,500 Bbl    |                                                                       | (2,032     | ) |
|                   |       |                  |       |          |       |       |       |                     |         |                      |         | $                                                                          | (12,556    | ) |

----

(1)          The Company’s natural gas collars were enteredinto on a per MMbtu delivered price basis, using the NYMEX Natural Gas Index.Mark-to-market accounting treatment is applied to these contracts and thechange in fair value is reflected in total revenue.

(2)          The Company’s crude oil contracts were entered into on a per barreldelivered price basis, using the West Texas Intermediate Light Sweet Crude OilIndex. Mark-to-market accounting treatment is applied to these contracts andthe change in fair value is reflected in total revenue.

At March 31, 2007, the fair value of the outstandingderivatives was a net liability of approximately $12.6 million. A 10% change inthe commodity price per unit, as long as the price is either above the ceilingor below the floor price, would cause the fair value total of the derivativeinstruments to increase or decrease by approximately $1.3 million.

##### ***ITEM 4. CONTROLS AND PROCEDURES***

In accordance withExchange Act Rules 13a-15 and 15d-15, we carried out an evaluation, under thesupervision and with the participation of management, including our ChiefExecutive Officer and Chief Financial Officer, of the effectiveness of our disclosurecontrols and procedures as of the end of the period covered by thisreport.  Based on that evaluation, ourChief Executive Officer and Chief Financial Officer concluded that ourdisclosure controls and procedures were effective as of March 31, 2007 toprovide reasonable assurance that information required to be disclosed in ourreports filed or submitted under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in the SEC’s rulesand forms.

There has been nochange in our internal controls over financial reporting that occurred duringthe three months ended March 31, 2007 that has materially affected, or isreasonably likely to materially affect, our internal controls over financialreporting.

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**PART II - OTHER INFORMATION**

**Item 1 - Legal Proceedings**

Fromtime to time we are a party to various legal proceedings arising in theordinary course of business.  While theoutcome of lawsuits cannot be predicted with certainty, we are not currently aparty to any proceeding that we believe, if determined in a manner adverse tothe Company, could have a material adverse effect on our financial condition,results of operations or cash flows, except as set forth below.

**Wadeand Joyce Montet, et al., v. Edge Petroleum Corp of Texas, et al., consolidatedwith Rolland L. Broussard, et al., v. Edge Petroleum Corp of Texas, et al****.** - This is a consolidated suit, filed instate court in Vermilion Parish, Louisiana in September 2003. Plaintiffs aremineral/royalty owners under the Norcen-Broussard No. 1 and 2 wells, Marg TexReservoir C, Sand Unit A (Edge’s old Bayou Vermilion Prospect).  Theyclaim the operator at the time, Norcen Explorer, now Anadarko E&P Company (“Anadarko”),failed to “block squeeze” the sections of the No. 2 well, as a prudentoperator, according to their allegations, would have done, to protect the gasreservoir from being flooded with water from adjacent underground formations.Plaintiffs further allege Norcen was negligent in not creating a field-wideunit to protect their interests.  The allegations relate to actions takenbeginning in the early 1990’s. Plaintiffs have named us and other workinginterest owners in the leases as defendants, including Norcen Explorer’ssuccessors in interest, Anadarko. Plaintiffs originally sought unspecifieddamages for lost royalties and damages due to alleged devaluation of theirmineral and property interests, plus interest and attorneys’ fees. In early2005, we filed a motion for summary judgment in the case asserting, among otherdefenses, that:  (i) there has been no breach of contract, (ii) there isno express or implied duty imposed on us to block squeeze the well or form afield-wide unit, (iii) the units were properly formed by the ConservationCommissioner in accordance with the statutory scheme in Louisiana, (iv)plaintiffs’ claims are barred by limitations, and (v) other defenses. Alongwith the other defendants, we also filed a special peremptory challenge of nocause of action under the leases and the Louisiana Mineral Code for failure toexhaust administrative remedies and due to lack of a demand. In May and June2005, the court ruled against us on the motion for summary judgment and theperemptory challenges. Of the 18.75% after-payout working interest that wasoriginally reserved in the leases, we owned a 2.8% working interest at the timeof the alleged acts or omissions. On September 6, 2005, we filed a third-partydemand to join the other working interest owners who hold the remainder of the18.75% working interest as third-party defendants in this case. Thesethird-parties consist, for the most part, of partnerships that are directly orindirectly controlled by John Sfondrini, a director of Edge, and hold anaggregate 14.7% working interest (the “Sfondrini Partnerships”). VincentAndrews, also a director of Edge, owns a minority interest in the corporategeneral partner of one of the partnerships.  The Sfondrini Partnershipsconsist of (1) Edge Group Partnership, a general partnership composed oflimited partnerships of which Mr. Sfondrini and a company controlled by Mr.Sfondrini are general partners; (2) (A) Edge Option I Limited Partnership, (B)Edge Option II Limited Partnership and (C) Edge Option III Limited Partnership,limited partnerships of which Mr. Sfondrini and a company controlled by Mr.Sfondrini are general partners; and (3) BV Partners Limited Partnership, alimited partnership of which a company controlled by Messrs. Sfondrini andAndrews is general partner and of which Mr. Sfondrini is manager (and of whichcompany Mr. Andrews is an officer).  These partnerships were among thethird party defendants that we have sought to join in the case, and thesepartnerships have for the most part filed answers denying any liability to theCompany. We participated for our 2.8% share of the well costs and revenues forthe Broussard No. 2 well, as did the other defendants for their share,including the third-party defendant partnerships who participated for 14.7%. Westrongly believe the parties should only be liable for their proportionateshare of any damages awarded, should a finding of liability occur in the case.We intend to vigorously contest the plaintiffs’ claims.

Asof the date of this report, it is not possible to determine what, if any, ourultimate exposure might be in this matter. Prior to the settlement describedbelow, plaintiffs had asserted damages, including interest, to be as high as$63 million.  The plaintiffs’ expert witness, in his December 2005deposition, offered his theory that plaintiffs’ gross damages are in the rangeof $19 to $22 million. That number is based on his theory that the allegedfailure to block squeeze the well resulted in the under-production of gas worth$300 million. Plaintiffs’ royalty share of that figure yields the $19 to $22million range of alleged damages. Based on the expert’s testimony, damagesattributable to the full 18.75% interest would be in the range of $3.75 milliongross or net to our 2.8% share would be in the range of $560,000 (excludinginterest and attorneys’ fees). Along with the other defendants, we hired itsown expert witnesses who have refuted these claims, particularly the expert’sassertions that failure to block squeeze the well

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caused any damagesto the reservoir. The deposition of a Norcen engineer who prepared thecompletion plan for the Broussard No. 2 well and supervised the completionoperations, taken in April 2006, confirms the testimony of the defense expertsas to why the well was not block squeezed.  The plaintiffs have alsoretained a damages expert who has given a report that the damages in this caseare in the range of $30 million, excluding interest and attorneys’ fees. Our share of that amount based on the full 18.75% would be approximately $5.6million and net to our 2.8% share would be approximately $840,000. Weparticipated in mediation of this lawsuit on July 18, 2006 but the partiesfailed to reach an agreement.  In July 2006, the plaintiffs’ attorney senta demand to the defendants for total damages claimed by plaintiffs, with legalinterest, totaling $63 million. Our share of that amount based on the full18.75% interest would be approximately $12.2 million and net to our 2.8%interest would be approximately $1.8 million. On July 31, 2006, the Judgegranted the defendant groups’ motion for partial summary judgment dismissingplaintiffs’ tort-based claims. Also on the same date, the Judge granted thedefendant groups’ motion for partial summary judgment seeking to deny theplaintiffs an award of attorneys’ fees and also to dismiss any claim ofplaintiffs that defendants had an obligation to form a field-wide unit.

OnDecember 19, 2006, we, along with the other defendants in this suit, reached asettlement agreement with the Broussard Plaintiffs in full settlement of their72% of the total claims made in this consolidated action. This settlement wasfinalized in January 2007. Our share of this settlement totaledapproximately $208,000, which was recorded in December 2006, and the SfondriniPartnerships’ share totaled $1,109,759.  The settlement with the BroussardPlaintiffs was finalized on February 1, 2007, and the defendants and thethird-party defendants including the Sfondrini Partnerships were released fromall claims by the Broussard Plaintiffs.

We willparticipate in a mediation regarding the remaining claims in this lawsuit withthe Montet plaintiffs on May 10, 2007. If this matter is not resolved at mediation, the trial on the remainingclaims of the Montet plaintiffs (approximately 28% of the original aggregateclaims in the case) will begin on August 27, 2007.  The Montet plaintiffs’calculation of their alleged damages has not changed.  If the jury were toadopt the plaintiffs’ damage figures, the total damages attributable to theMontet plaintiffs could be approximately $17.6 million. The defendants’exposure for an 18.75% share of that number would be approximately $3.31million.  The exposure for our 2.8% share would be approximately $493,000. If there were a damage award against the defendants, we believe thatultimately it should only be liable for its 2.8% share of any such award unlessa co-party defendant, including any of the third-party defendants, cannotsatisfy their share of any final judgment or settlement amount or are found notto be liable to us on its third-party demand.  In that event, we could beheld responsible for more than our 2.8% share.  We believe we havemeritorious defenses and intend to continue to vigorously contest this suit andour third-party demands against the partnerships.  We have not establisheda reserve with respect to these claims.

We may haveinsurance coverage for all or part of this claim up to the policy limits of $1million per occurrence and $2 million in the aggregate.  A claim wassubmitted to Mid-Continent Casualty Company, our casualty carrier, who iscurrently providing a defense under a reservation of rights letter. However, on July 3, 2006, Mid-Continent filed a suit for declaratory judgmentagainst us in federal district court in Houston, Texas seeking to determinewhether it has a duty to indemnify us and certain other defendants for thisloss under the policies at issue.  Mid-Continent has asked the court todeclare they have no obligation to indemnify us and the third-party defendantsbased on certain technical definitions under the policies and the fact that theplaintiffs’ claims are based on alleged breaches of contract.  We are bothvigorously defending the declaratory judgment action, and actively seekingindemnity under the policies at issue for its potential liabilities, if any, tothe plaintiffs in the Louisiana actions.  We are also pursuing coverageclaims under other insurance policies that could cover a portion of our shareof a loss in this case.

**David Blake, et al. v. Edge Petroleum Corporation**— On September 19, 2005, David Blake and David Blake, Trustee of the David andNita Blake 1992 Children’s Trust filed suit against Edge in state districtcourt in Goliad County, Texas alleging breach of contract for failure andrefusal to transfer overriding royalty interests to plaintiffs in at least fiveleases in Goliad County, Texas and failure and refusal to pay monies to Blakepursuant to such overriding royalty interests for wells completed on theleases. The plaintiffs seek relief of (1) specific performance of the allegedagreement, including granting of overriding royalty interests by the Company toBlake; (2) monetary damages for failure to grant the overriding royaltyinterests; (3) exemplary damages for his claims of business disparagement and slander;(4) monetary damages for tortuous interference; and (5) attorneys’ fees andcourt costs. Venue of the case was transferred to Harris County, Texas byagreement of the litigants.  We have served plaintiffs with discovery andhave filed a counterclaim and an amended counterclaim joining various related 

45

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entities that are controlled by plaintiffs.  Inaddition, plaintiffs have filed an amended complaint alleging claims of slanderof title and tortuous interference related to its alleged right to receive anoverriding royalty interest from a third party.  Plaintiffs currently haveon file an amended motion for summary judgment, to which we have filed aresponse.  In addition, we have filed a motion for summary judgment on theplaintiffs’ case.  In December 2006, the court denied our motion for summaryjudgment.  The court has not ruled on Blake’s motion.  The trial isscheduled to begin September 15, 2007.    Discovery in the case hascommenced and is continuing. We have responded aggressively to this lawsuit,and believe we have meritorious defenses and counterclaims.

**Item 1A — Risk Factors**

Inaddition to the other information set forth in this report, you shouldcarefully consider the factors discussed in Part I, “Item 1A. Risk Factors” inour 2006 Annual Report on Form 10-K, which could materially affect ourbusiness, financial condition or future results.  The risks described in our 2006 Annual Reporton Form 10-K are not the only risks facing our Company.  Additional risks and uncertainties notcurrently known to us or that we currently deem to be immaterial also maymaterially adversely affect our business, financial condition and/or operatingresults.
| **Item 2 - Unregistered Sale of Equity Securities and Use of Proceeds** |   | None |
|-------------------------------------------------------------------------|--------|------|
| **Item 3 - Defaults Upon Senior  Securities**                           |   | None |
| **Item 4 - Submission of Matters  to a Vote of Security Holders**       |   | None |
| **Item 5 - Other Information**                                          |   | None |

 

**Item 6 - Exhibits**

Thefollowing exhibits are filed as part of this report:

**INDEX TO EXHIBITS**
| **Exhibit No.** | ** ** |                                                                                                                                                                                                                                                                                                                                                                                                                                |
|----------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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 (Incorporated by reference from exhibit 2.1  to the Company’s Registration Statement on Form S-4 (Registration No.  333-17269)). |
| 2.2 —           |       | Agreement and Plan of  Merger dated as of May 28, 2003 among Edge Petroleum Corporation, Edge  Delaware Sub Inc. and Miller Exploration Company (“Miller”) (Incorporated by  reference from Annex A to the Joint Proxy Statement/Prospectus contained in  the Company’s Registration Statement on Form S-4/A filed on October 31, 2003  (Registration No. 333-106484)).                                         |
| 2.3 —           |       | Asset Purchase  Agreement by and among Contango STEP, L.P., Contango Oil & Gas Company,  Edge Petroleum Exploration Company and Edge Petroleum Corporation dated  October 7, 2004 (Incorporated by reference from exhibit 2.1 to the Company’s  Current Report on Form 8-K filed October 12, 2004).                                                                                                                   |
| 2.4 —           |       | Purchase and Sale  Agreement, dated as of September 21, 2005 among Pearl Energy Partners, Ltd.,  and Cibola Exploration Partners, L.P., as Sellers; and Edge Petroleum  Exploration Company as Buyer and Edge Petroleum Corporation as Guarantor  (Incorporated by reference from exhibit 2.01 to the Company’s Current Report  on Form 8-K filed October 19, 2005).                                                      |
| 2.5 —           |       | Stock Purchase  Agreement by and among Jon L. Glass, Craig D. Pollard, Leigh T. Prieto,  Yorktown Energy Partners V, L.P., Yorktown Energy Partners VI, L.P., Cinco  Energy Corporation, and Edge Petroleum Exploration Company and Edge Petroleum  Corporation dated September 21, 2005                                                                                                                                       |

 

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|            |   | (Incorporated by reference from exhibit 2.5 to the  Company’s Quarterly Report on Form 10-Q for the quarterly period ended  September 30, 2005).                                                                                                                                                                                                                                                                                                                                                                                                              |
|------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.6 — |   | Letter Agreement dated  November 18, 2005 by and among Edge Petroleum Exploration Company, Cinco  Energy Corporation and Sellers (Incorporated by reference from exhibit 2.02  to the Company’s Current Report on Form 8-K filed December 6, 2005). Pursuant  to Item 601(b)(2) of Regulation S-K, the Company had omitted certain  Schedules to the Letter Agreement (all of which are listed therein) from this  Exhibit 2.6. It hereby agrees to furnish a supplemental copy of any such  omitted item to the SEC on its request.                          |
| 3.1 — |   | Restated Certificate of  Incorporation of the Company effective January 27, 1997 (Incorporated by  reference from exhibit 3.1 to the Company’s Current Report on Form 8-K filed  April 29, 2005).                                                                                                                                                                                                                                                                                                                                                             |
| 3.2 — |   | Certificate of  Amendment to the Restated Certificate of Incorporation of the Company  effective January 31, 1997 (Incorporated by reference from exhibit 3.2 to the  Company’s Current Report on Form 8-K filed April 29, 2005).                                                                                                                                                                                                                                                                                                                             |
| 3.3 — |   | Certificate of  Amendment to the Restated Certificate of Incorporation of the Company  effective April 27, 2005 (Incorporated by reference from exhibit 3.3 to the  Company’s Current Report on Form 8-K filed April 29, 2005).                                                                                                                                                                                                                                                                                                                               |
| 3.4 — |   | Bylaws of the Company  (Incorporated by Reference from exhibit 3.3 to the Company’s Quarterly Report  on Form 10-Q for the quarterly period ended September 30, 1999).                                                                                                                                                                                                                                                                                                                                                                                        |
| 3.5 — |   | First Amendment to  Bylaws of the Company on September 28, 1999 (Incorporated by Reference from  exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly  period ended September 30, 1999).                                                                                                                                                                                                                                                                                                                                              |
| 3.6 — |   | Second Amendment to  Bylaws of the Company on May 7, 2003 (Incorporated by reference from exhibit  3.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period  ended March 31, 2003).                                                                                                                                                                                                                                                                                                                                                        |
| 4.1 — |   | Third Amended and  Restated Credit Agreement dated December 31, 2003 among Edge Petroleum  Corporation, Edge Petroleum Exploration Company, Edge Petroleum Operating  Company, Inc., Miller Oil Corporation and Miller Exploration Company, as  borrowers, the lenders thereto and Union Bank of California, N.A., a national  banking association, as Agent (Incorporated by reference from Exhibit 4.1 to  the Company’s Quarterly Report on Form 10-Q for the quarterly period ended  March 31, 2004).                                                     |
| 4.2 — |   | Agreement and Amendment  No. 1 to Third Amended and Restated Credit Agreement dated May 31, 2005 among  Edge Petroleum Corporation, Edge Petroleum Exploration Company, Edge  Petroleum Operating Company, Inc., Miller Exploration Company and Miller Oil  Corporation, as borrowers, the lenders thereto and Union Bank of California,  N.A., a national banking association, as agent for the lenders (Incorporated  by reference from Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q  for the quarterly period ended June 30, 2005).          |
| 4.3 — |   | Agreement and Amendment  No. 2 to the Third Amended and Restated Credit Agreement dated November 30,  2005 among Edge Petroleum Corporation, Edge Petroleum Exploration Company,  Edge Petroleum Operating Company, Inc., Miller Oil Corporation, Miller  Exploration Company, and Cinco Energy Corporation, as borrowers, the lenders  thereto and Union Bank of California, N.A., a national banking association,  as Agent (Incorporated by reference from exhibit 4.3 to the Company’s Annual  Report on Form 10-K for the year ended December 31, 2005). |
| 4.4 — |   | Miller Exploration  Company Stock Option and Restricted Stock Plan of 1997 (Incorporated by  reference from exhibit 10.1(a) to Miller Exploration Company’s Annual Report  on Form 10-K for the year ended December 31, 1997 (File No. 000-23431)).                                                                                                                                                                                                                                                                                                           |

 

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| 4.5 —        |   | Amendment No. 1 to the  Miller Exploration Company Stock Option and Restricted Stock Plan of 1997  (Incorporated by reference to Exhibit 4.2 from Miller Exploration Company’s  Registration Statement on Form S-8 filed on April 11, 2001 (Registration No.  333-58678)).                                                                                      |
|-------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.6 —        |   | Amendment No. 2 to the  Miller Exploration Company Stock Option and Restricted Stock Plan of 1997  (Incorporated by reference from Exhibit 4.3 to Miller Exploration Company’s  Registration Statement on Form S-8 filed on April 11, 2001 (Registration No.  333-58678)).                                                                                      |
| 4.7 —        |   | Form of Miller Stock  Option Agreement (Incorporated by reference from exhibit 10.1(b) to Miller  Exploration Company’s Annual Report on Form 10-K for the year ended December  31, 1997 (File No. 000-23431)).                                                                                                                                                 |
| 4.8 —        |   | Fourth Amended and  Restated Credit Agreement dated January 31, 2007 by and among Edge Petroleum  Corporation, as borrower, and Union Bank of California, N.A., as  Administrative Agent and Issuing Lender, and the other lenders party thereto  (Incorporated by reference from exhibit 4.1 to Edge’s Current Report on Form  8-K filed on February 5, 2007). |
| †10.1 — |   | Form of Indemnification  Agreement between the Company and each of its directors (Incorporated by  reference from exhibit 10.7 to the Company’s Registration Statement on Form  S-4 (Registration No. 333-17269)).                                                                                                                                              |
| †10.2 — |   | Stock Option Plan of  Edge Petroleum Corporation, a Texas corporation (Incorporated by reference  from exhibit 10.13 to the Company’s Registration Statement on Form S-4  (Registration No. 333-17269)).                                                                                                                                                        |
| †10.3 — |   | Employment Agreement  dated as of November 16, 1998, by and between the Company and John W. Elias  (Incorporated by reference from exhibit 10.12 to the Company’s Annual Report  on Form 10-K for the year ended December 31, 1998).                                                                                                                            |
| †10.4 — |   | Amended and Restated  Incentive Plan of Edge Petroleum Corporation as Amended and Restated  Effective as of August 1, 2006 (Incorporated by reference from exhibit 10.4  to the Company’s Quarterly Report on Form 10-Q for the six months ended June  30, 2006).                                                                                               |
| †10.5 — |   | Edge Petroleum  Corporation Incentive Plan “Standard Non-Qualified Stock Option Agreement” by  and between Edge Petroleum Corporation and the Officers named therein  (Incorporated by reference from exhibit 10.2 to the Company’s Quarterly  Report on Form 10-Q for the quarterly period ended September 30, 1999).                                |
| †10.6 — |   | Edge Petroleum  Corporation Incentive Plan “Director Non-Qualified Stock Option Agreement” by  and between Edge Petroleum Corporation and the Directors named therein  (Incorporated by reference from exhibit 10.3 to the Company’s Quarterly  Report on Form 10-Q for the quarterly period ended September 30, 1999).                               |
| †10.7 — |   | Severance Agreements by  and between Edge Petroleum Corporation and the Officers of the Company named  therein (Incorporated by reference from exhibit 10.4 to the Company’s  Quarterly Report on Form 10-Q for the quarterly period ended September 30,  1999).                                                                                                |
| †10.8 — |   | Form of Director’s  Restricted Stock Award Agreement under the Incentive Plan of Edge Petroleum  Corporation (Incorporated by reference from exhibit 10.12 to the Company’s  Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004).                                                                                                  |
| †10.9 — |   | Form of Employee  Restricted Stock Award Agreement under the Incentive Plan of Edge Petroleum  Corporation (Incorporated by reference from exhibit 10.15 to the Company’s  Quarterly Report on Form 10-Q/A for the quarterly period ended March 31, 1999).                                                                                                      |

 

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| †10.10 — |   | Edge Petroleum  Corporation Amended and Restated Elias Stock Incentive Plan. (Incorporated by  reference from exhibit 4.5 to the Company’s Registration Statement on Form  S-8 filed May 30, 2001 (Registration No. 333-61890)).                                                                                                                   |
|--------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| †10.11 — |   | Form of Edge Petroleum  Corporation John W. Elias Non-Qualified Stock Option Agreement (Incorporated  by reference from exhibit 4.6 to the Company’s Registration Statement on Form  S-8 filed May 30, 2001 (Registration No. 333-61890)).                                                                                                         |
| †10.12 — |   | Summary of Compensation  of Non-Employee Directors (Incorporated by reference from Exhibit 10.12 to  the Company’s Annual Report on Form 10-K for the year ended December 31,  2006).                                                                                                                                                              |
| †10.13 — |   | Salaries and Certain  Other Compensation of Executive Officers (Incorporated by reference from  Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended  December 31, 2006)                                                                                                                                                   |
| †10.14 — |   | Description of Annual  Cash Bonus Program for Executive Officers (Incorporated by reference from  Exhibit 10.2 to the Company’s Current Report on Form 8-K filed March 12,  2007).                                                                                                                                                                 |
| †10.15 — |   | New Base Salaries and  Long-Term Incentive Awards for Certain Executive Officers (Incorporated by  reference from exhibit 10.1 to the Company’s Current Report on Form 8-K filed  August 29, 2006).                                                                                                                                                |
| 10.16 —       |   | Purchase and Sale  Agreement between Smith Production, Inc., as seller, and Edge Petroleum  Exploration Company, as purchaser, dated November 16, 2006 (Incorporated by  reference to exhibit 10.1 to Edge’s Current Report on Form 8-K filed January  16, 2007).                                                                                  |
| 10.17 —       |   | Purchase and Sale  Agreement between Smith Production, Inc., as seller, and Edge Petroleum  Exploration Company, as purchaser, dated November 16, 2006 (Incorporated by  reference to exhibit 10.2 to Edge’s Current Report on Form 8-K filed January  16, 2007).                                                                                  |
| 10.18 —       |   | First Amendment of  Purchase and Sale Agreement between Smith Production, Inc., as seller, and  Edge Petroleum Exploration Company, as purchaser, dated December 16, 2006  (Incorporated by reference to exhibit 10.3 to Edge’s Current Report on Form  8-K filed January 16, 2007).                                                               |
| 10.19 —       |   | Second Amendment of  Purchase and Sale Agreement between Smith Production, Inc., as seller, and  Edge Petroleum Exploration Company, as purchaser, dated January 15, 2007  (Incorporated by reference to exhibit 10.1 to Edge’s Current Report on Form  8-K filed January 19, 2007).                                                               |
| 10.20 —       |   | First Amendment of  Purchase and Sale Agreement between Smith Production, Inc., as seller, and  Edge Petroleum Exploration Company, as purchaser, dated January 15, 2007  (Incorporated by reference to exhibit 10.2 to Edge’s Current Report on Form  8-K filed January 19, 2007).                                                                |
| 10.21 —       |   | Third Amendment of  Purchase and Sale Agreement between Smith Production, Inc., as seller, and  Edge Petroleum Exploration Company, as purchaser, dated January 31, 2007  (Incorporated by reference to exhibit 10.6 to Edge’s Current Report on Form  8-K filed February 5, 2007).                                                                |
| 10.22 —       |   | Certificate of  Designations establishing the 5.75% Series A cumulative convertible perpetual  preferred stock, dated January 25, 2007 (Incorporated by reference to exhibit  3.1 to Edge’s Current Report on Form 8-K filed January 30, 2007).                                                                                                    |
| 10.23 —       |   | Purchase and Sale  Agreement between Kerr-McGee Oil & Gas Onshore, L.P., as Seller, and Edge  Petroleum Production Company, as Purchaser, and Edge Petroleum Corporation,  as Additional Purchaser dated December 12, 2006 (Incorporated by reference  from exhibit 2.1 to the Company’s Current Report on Form 8-K filed December  18, 2006). |

 

49

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| 10.24 — |   | New Base Salaries of  Executive Officers (Incorporated by reference from Exhibit 10.1 to the  Company’s Current Report on Form 8-K filed March 12, 2007).                                                                |
|--------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *31.1 — |   | Certification by John  W. Elias, Chief Executive Officer, pursuant to Rule 13a-14(a) or Rule  15d-14(a) under the Securities Exchange Act of 1934.                                                                            |
| *31.2 — |   | Certification by  Michael G. Long, Chief Financial Officer, pursuant to Rule 13a-14(a) or Rule  15d-14(a) under the Securities Exchange Act of 1934.                                                                          |
| *32.1 — |   | Certification by John  W. Elias, Chief Executive Officer, pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter  63 of Title 18, United States Code).                  |
| *32.2 — |   | Certification by  Michael G. Long, Chief Financial and Accounting Officer, pursuant to Section  906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section  1350, Chapter 63 of Title 18, United States Code). |

----

*                    Filedherewith.

†                     Denotesmanagement or compensatory contract, arrangement or agreement.

50

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**SIGNATURES**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.
|                  | EDGE PETROLEUM CORPORATION,             |
|------------------|-----------------------------------------|
|             | A DELAWARE CORPORATION                  |
|             | (REGISTRANT)                            |
|             |                                    |
| Date May 9, 2007 | /s/ John W.  Elias                      |
|             | John W. Elias                           |
|             | President, Chief  Executive Officer and |
|             | Chairman of the  Board                  |
|             |                                    |
|             |                                    |
|             |                                    |
| Date May 9, 2007 | /s/ Michael G.  Long                    |
|             | Michael G. Long                         |
|             | Executive Vice  President and           |
|             | Chief Financial  Officer                |

 

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**INDEX TO EXHIBITS**
| Exhibit No  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |
|------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 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 (Incorporated by reference from  exhibit 2.1 to the Company’s Registration Statement on Form S-4 (Registration  No. 333-17269)).                                                                                                            |   |
| 2.2  — |   | Agreement and  Plan of Merger dated as of May 28, 2003 among Edge Petroleum Corporation,  Edge Delaware Sub Inc. and Miller Exploration Company (“Miller”)  (Incorporated by reference from Annex A to the Joint Proxy  Statement/Prospectus contained in the Company’s Registration Statement on  Form S-4/A filed on October 31, 2003 (Registration No. 333-106484)).                                                                                                                                                    |   |
| 2.3 —       |   | Asset Purchase  Agreement by and among Contango STEP, L.P., Contango Oil & Gas Company,  Edge Petroleum Exploration Company and Edge Petroleum Corporation dated  October 7, 2004 (Incorporated by reference from exhibit 2.1 to the Company’s  Current Report on Form 8-K filed October 12, 2004).                                                                                                                                                                                                                              |   |
| 2.4 —       |   | Purchase and  Sale Agreement, dated as of September 21, 2005 among Pearl Energy Partners,  Ltd., and Cibola Exploration Partners, L.P., as Sellers; and Edge Petroleum  Exploration Company as Buyer and Edge Petroleum Corporation as Guarantor  (Incorporated by reference from exhibit 2.01 to the Company’s Current Report  on Form 8-K filed October 19, 2005).                                                                                                                                                                 |   |
| 2.5 —       |   | Stock Purchase  Agreement by and among Jon L. Glass, Craig D. Pollard, Leigh T. Prieto,  Yorktown Energy Partners V, L.P., Yorktown Energy Partners VI, L.P., Cinco  Energy Corporation, and Edge Petroleum Exploration Company and Edge Petroleum  Corporation dated September 21, 2005 (Incorporated by reference from exhibit  2.5 to the Company’s Quarterly Report on Form 10-Q for the quarterly period  ended September 30, 2005).                                                                                            |   |
| 2.6 —       |   | Letter Agreement  dated November 18, 2005 by and among Edge Petroleum Exploration Company,  Cinco Energy Corporation and Sellers (Incorporated by reference from exhibit  2.02 to the Company’s Current Report on Form 8-K filed December 6, 2005).  Pursuant to Item 601(b)(2) of Regulation S-K, the Company had omitted certain  Schedules to the Letter Agreement (all of which are listed therein) from this  Exhibit 2.6. It hereby agrees to furnish a supplemental copy of any such  omitted item to the SEC on its request. |   |
| 3.1 —       |   | Restated  Certificate of Incorporation of the Company effective January 27, 1997  (Incorporated by reference from exhibit 3.1 to the Company’s Current Report  on Form 8-K filed April 29, 2005).                                                                                                                                                                                                                                                                                                                                    |   |
| 3.2 —       |   | Certificate of  Amendment to the Restated Certificate of Incorporation of the Company  effective January 31, 1997 (Incorporated by reference from exhibit 3.2 to the  Company’s Current Report on Form 8-K filed April 29, 2005).                                                                                                                                                                                                                                                                                                    |   |
| 3.3 —       |   | Certificate of  Amendment to the Restated Certificate of Incorporation of the Company  effective April 27, 2005 (Incorporated by reference from exhibit 3.3 to the  Company’s Current Report on Form 8-K filed April 29, 2005).                                                                                                                                                                                                                                                                                                      |   |
| 3.4 —       |   | Bylaws of the  Company (Incorporated by Reference from exhibit 3.3 to the Company’s  Quarterly Report on Form 10-Q for the quarterly period ended September 30,  1999).                                                                                                                                                                                                                                                                                                                                                              |   |
| 3.5 —       |   | First Amendment  to Bylaws of the Company on September 28, 1999 (Incorporated by Reference  from exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the  quarterly period ended September 30, 1999).                                                                                                                                                                                                                                                                                                                     |   |
| 3.6 —       |   | Second Amendment to  Bylaws of the Company on May 7, 2003 (Incorporated by reference from exhibit  3.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period  ended March 31, 2003).                                                                                                                                                                                                                                                                                                                               |   |

 

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| 4.1 —         |   | Third Amended  and Restated Credit Agreement dated December 31, 2003 among Edge Petroleum  Corporation, Edge Petroleum Exploration Company, Edge Petroleum Operating  Company, Inc., Miller Oil Corporation and Miller Exploration Company, as  borrowers, the lenders thereto and Union Bank of California, N.A., a national  banking association, as Agent (Incorporated by reference from Exhibit 4.1 to  the Company’s Quarterly Report on Form 10-Q for the quarterly period ended  March 31, 2004).                                                      |   |
|--------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 4.2 —         |   | Agreement and  Amendment No. 1 to Third Amended and Restated Credit Agreement dated May 31,  2005 among Edge Petroleum Corporation, Edge Petroleum Exploration Company,  Edge Petroleum Operating Company, Inc., Miller Exploration Company and Miller  Oil Corporation, as borrowers, the lenders thereto and Union Bank of  California, N.A., a national banking association, as agent for the lenders (Incorporated  by reference from Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q  for the quarterly period ended June 30, 2005).           |   |
| 4.3 —         |   | Agreement and  Amendment No. 2 to the Third Amended and Restated Credit Agreement dated  November 30, 2005 among Edge Petroleum Corporation, Edge Petroleum  Exploration Company, Edge Petroleum Operating Company, Inc., Miller Oil  Corporation, Miller Exploration Company, and Cinco Energy Corporation, as  borrowers, the lenders thereto and Union Bank of California, N.A., a national  banking association, as Agent (Incorporated by reference from exhibit 4.3 to  the Company’s Annual Report on Form 10-K for the year ended December 31,  2005). |   |
| 4.4 —         |   | Miller  Exploration Company Stock Option and Restricted Stock Plan of 1997 (Incorporated  by reference from exhibit 10.1(a) to Miller Exploration Company’s Annual  Report on Form 10-K for the year ended December 31, 1997 (File No.  000-23431)).                                                                                                                                                                                                                                                                                                           |   |
| 4.5 —         |   | Amendment No. 1  to the Miller Exploration Company Stock Option and Restricted Stock Plan of  1997 (Incorporated by reference to Exhibit 4.2 from Miller Exploration  Company’s Registration Statement on Form S-8 filed on April 11, 2001  (Registration No. 333-58678)).                                                                                                                                                                                                                                                                                     |   |
| 4.6 —         |   | Amendment No. 2  to the Miller Exploration Company Stock Option and Restricted Stock Plan of  1997 (Incorporated by reference from Exhibit 4.3 to Miller Exploration  Company’s Registration Statement on Form S-8 filed on April 11, 2001  (Registration No. 333-58678)).                                                                                                                                                                                                                                                                                     |   |
| 4.7 —         |   | Form of Miller  Stock Option Agreement (Incorporated by reference from exhibit 10.1(b) to  Miller Exploration Company’s Annual Report on Form 10-K for the year ended  December 31, 1997 (File No. 000-23431)).                                                                                                                                                                                                                                                                                                                                                |   |
| 4.8 —         |   | Fourth Amended  and Restated Credit Agreement dated January 31, 2007 by and among Edge  Petroleum Corporation, as borrower, and Union Bank of California, N.A., as  Administrative Agent and Issuing Lender, and the other lenders party thereto  (Incorporated by reference from exhibit 4.1 to Edge’s Current Report on Form  8-K filed on February 5, 2007).                                                                                                                                                                                                |   |
| †10.1 —  |   | Form of  Indemnification Agreement between the Company and each of its directors  (Incorporated by reference from exhibit 10.7 to the Company’s Registration  Statement on Form S-4 (Registration No. 333-17269)).                                                                                                                                                                                                                                                                                                                                             |   |
| †10.2 —  |   | Stock Option  Plan of Edge Petroleum Corporation, a Texas corporation (Incorporated by  reference from exhibit 10.13 to the Company’s Registration Statement on Form  S-4 (Registration No. 333-17269)).                                                                                                                                                                                                                                                                                                                                                       |   |
| †10.3  — |   | Employment Agreement  dated as of November 16, 1998, by and between the Company and John W. Elias  (Incorporated by reference from exhibit 10.12 to the Company’s Annual Report  on Form 10-K for the year ended December 31, 1998).                                                                                                                                                                                                                                                                                                                           |   |

 

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| †10.4 —  |   | Amended and  Restated Incentive Plan of Edge Petroleum Corporation as Amended and Restated  Effective as of August 1, 2006 (Incorporated by reference from exhibit 10.4  to the Company’s Quarterly Report on Form 10-Q for the six months ended June  30, 2006).                                                                 |   |
|--------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| †10.5 —  |   | Edge Petroleum  Corporation Incentive Plan “Standard Non-Qualified Stock Option Agreement” by  and between Edge Petroleum Corporation and the Officers named therein  (Incorporated by reference from exhibit 10.2 to the Company’s Quarterly  Report on Form 10-Q for the quarterly period ended September 30, 1999).  |   |
| †10.6 —  |   | Edge Petroleum  Corporation Incentive Plan “Director Non-Qualified Stock Option Agreement” by  and between Edge Petroleum Corporation and the Directors named therein  (Incorporated by reference from exhibit 10.3 to the Company’s Quarterly  Report on Form 10-Q for the quarterly period ended September 30, 1999). |   |
| †10.7 —  |   | Severance  Agreements by and between Edge Petroleum Corporation and the Officers of the  Company named therein (Incorporated by reference from exhibit 10.4 to the  Company’s Quarterly Report on Form 10-Q for the quarterly period ended  September 30, 1999).                                                                  |   |
| †10.8 —  |   | Form of  Director’s Restricted Stock Award Agreement under the Incentive Plan of Edge  Petroleum Corporation (Incorporated by reference from exhibit 10.12 to the  Company’s Quarterly Report on Form 10-Q for the quarterly period ended June  30, 2004).                                                                   |   |
| †10.9 —  |   | Form of Employee  Restricted Stock Award Agreement under the Incentive Plan of Edge Petroleum  Corporation (Incorporated by reference from exhibit 10.15 to the Company’s  Quarterly Report on Form 10-Q/A for the quarterly period ended March 31,  1999).                                                                       |   |
| †10.10 — |   | Edge Petroleum  Corporation Amended and Restated Elias Stock Incentive Plan. (Incorporated by  reference from exhibit 4.5 to the Company’s Registration Statement on Form  S-8 filed May 30, 2001 (Registration No. 333-61890)).                                                                                                  |   |
| †10.11 — |   | Form of Edge  Petroleum Corporation John W. Elias Non-Qualified Stock Option Agreement  (Incorporated by reference from exhibit 4.6 to the Company’s Registration  Statement on Form S-8 filed May 30, 2001 (Registration No. 333-61890)).                                                                                        |   |
| †10.12 — |   | Summary of  Compensation of Non-Employee Directors (Incorporated by reference from  Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the year ended  December 31, 2006).                                                                                                                                             |   |
| †10.13 — |   | Salaries and  Certain Other Compensation of Executive Officers (Incorporated by reference  from Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year  ended December 31, 2006).                                                                                                                                 |   |
| †10.14 — |   | Description of  Annual Cash Bonus Program for Executive Officers (Incorporated by reference  from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed March 12,  2007).                                                                                                                                                |   |
| †10.15 — |   | New Base  Salaries and Long-Term Incentive Awards for Certain Executive Officers  (Incorporated by reference from exhibit 10.1 to the Company’s Current Report  on Form 8-K filed August 29, 2006).                                                                                                                               |   |
| 10.16 —       |   | Purchase and  Sale Agreement between Smith Production, Inc., as seller, and Edge Petroleum  Exploration Company, as purchaser, dated November 16, 2006 (Incorporated by  reference to exhibit 10.1 to Edge’s Current Report on Form 8-K filed January  16, 2007).                                                                 |   |
| 10.17 —       |   | Purchase and Sale  Agreement between Smith Production, Inc., as seller, and Edge Petroleum  Exploration Company, as purchaser, dated November 16, 2006 (Incorporated by  reference to exhibit 10.2 to Edge’s Current Report on Form 8-K filed January  16, 2007).                                                                 |   |

 

54

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| 10.18 — |   | First Amendment  of Purchase and Sale Agreement between Smith Production, Inc., as seller, and  Edge Petroleum Exploration Company, as purchaser, dated December 16, 2006  (Incorporated by reference to exhibit 10.3 to Edge’s Current Report on Form  8-K filed January 16, 2007).                                                               |   |
|--------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 10.19 — |   | Second Amendment  of Purchase and Sale Agreement between Smith Production, Inc., as seller, and  Edge Petroleum Exploration Company, as purchaser, dated January 15, 2007  (Incorporated by reference to exhibit 10.1 to Edge’s Current Report on Form  8-K filed January 19, 2007).                                                               |   |
| 10.20 — |   | First Amendment  of Purchase and Sale Agreement between Smith Production, Inc., as seller, and  Edge Petroleum Exploration Company, as purchaser, dated January 15, 2007  (Incorporated by reference to exhibit 10.2 to Edge’s Current Report on Form  8-K filed January 19, 2007).                                                                |   |
| 10.21 — |   | Third Amendment  of Purchase and Sale Agreement between Smith Production, Inc., as seller, and  Edge Petroleum Exploration Company, as purchaser, dated January 31, 2007  (Incorporated by reference to exhibit 10.6 to Edge’s Current Report on Form  8-K filed February 5, 2007).                                                                |   |
| 10.22 — |   | Certificate of  Designations establishing the 5.75% Series A cumulative convertible perpetual  preferred stock, dated January 25, 2007 (Incorporated by reference to exhibit  3.1 to Edge’s Current Report on Form 8-K filed January 30, 2007).                                                                                                    |   |
| 10.23 — |   | Purchase and  Sale Agreement between Kerr-McGee Oil & Gas Onshore, L.P., as Seller, and  Edge Petroleum Production Company, as Purchaser, and Edge Petroleum  Corporation, as Additional Purchaser dated December 12, 2006 (Incorporated by  reference from exhibit 2.1 to the Company’s Current Report on Form 8-K filed  December 18, 2006). |   |
| 10.24 — |   | New Base  Salaries of Executive Officers (Incorporated by reference from Exhibit 10.1  to the Company’s Current Report on Form 8-K filed March 12, 2007).                                                                                                                                                                                          |   |
| *31.1 — |   | Certification by  John W. Elias, Chief Executive Officer, pursuant to Rule 13a-14(a) or Rule  15d-14(a) under the Securities Exchange Act of 1934.                                                                                                                                                                                                      |   |
| *31.2 — |   | Certification by  Michael G. Long, Chief Financial Officer, pursuant to Rule 13a-14(a) or Rule  15d-14(a) under the Securities Exchange Act of 1934.                                                                                                                                                                                                    |   |
| *32.1 — |   | Certification by  John W. Elias, Chief Executive Officer, pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter  63 of Title 18, United States Code).                                                                                                                                            |   |
| *32.2 — |   | Certification by  Michael G. Long, Chief Financial and Accounting Officer, pursuant to Section  906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section  1350, Chapter 63 of Title 18, United States Code).                                                                                                                           |   |

----

*                    Filedherewith.

†                     Denotesmanagement or compensatory contract, arrangement or agreement.

55

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