Cubic Energy Acquires Additional Cotton Valley Acreage


Cotton Valley Development
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Cubic Energy has entered into a purchase agreement with Tauren Exploration, Inc. whereby the Company has acquired from Tauren certain Cotton Valley leasehold interests (approximately 11,000 gross acres; 5,000 net acres). The acquisition was funded through the issuance of $5.5 million in 12.5% senior secured debt. A portion of such debt (approximately $1.8 million) was used to retire the Company's prior outstanding senior debt.

Pursuant to the purchase agreement, Tauren, an exploration and production company wholly-owned by Calvin Wallen III, sold to Cubic a 35% working interest in approximately 2,400 acres and a 49% working interest in approximately 8,500 acres which are located in DeSoto and Caddo Parishes, Louisiana, along with an associated Area of Mutual Interest (AMI) and the right to acquire at "cost" a 70% working interest in all additional mineral leases obtained by Tauren in the AMI; in exchange for: cash of $3.5 million, 2.5 million shares of unregistered Cubic stock, a short-term note in the amount of $1.3 million (convertible into Cubic stock at $0.80/share) and a drilling credit of $2.1 million. Cubic also received an exclusive 60-day option to purchase a working interest in an additional 2,160 net acres in the aforementioned leasehold in exchange for issuing to Tauren a long-term subordinated note of $1.5 million and an additional drilling credit of $2.4 million. To exercise this option, Cubic will be required to raise additional capital.

The aforementioned transaction was approved by a special committee of the Board of Directors which excluded Mr. Wallen, and was supported by a fairness opinion obtained from independent financial counsel.

James L. Busby, Chief Financial Officer of Cubic stated: "This acquisition provides Cubic with significant and highly coveted Cotton Valley acreage in Northwest Louisiana. We expect to exercise our option and continue to increase our leasehold position in this exciting area."

The Company also stated that a portion of the acquisition acreage, consisting of a 35% interest in 4 contiguous sections, is adjacent on the North side of the Company's existing Bethany Longstreet acreage where Cubic has recently drilled the S.E. Johnson 20 No. 1.

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