Baseline to Acquire Gulf Coast Assets From DSX for $100 Million

Baseline Oil & Gas has entered into a definitive Purchase and Sale Agreement ("PSA") to acquire producing properties from DSX Energy Limited, LLP ("DSX") for consideration of $100 million, subject to certain adjustments and closing conditions. Baseline will own a 100% working interest and operate the properties. The Company expects to close the acquisition on or before October 30, 2007.

Following execution of the PSA, Baseline delivered a $2.5 million earnest money deposit to DSX, which will be credited against the purchase price at closing. The earnest money deposit was advanced by Baseline's senior lenders, pursuant to a letter agreement amending certain provisions of Baseline's senior credit agreement.

As a condition to closing, Baseline has engaged a third party engineering firm to prepare an independent evaluation of proved reserves as of June 1, 2007. If the independent reserve report shows total proved net hydrocarbon reserves to be less than 40 Bcfe, then the Company will have the right, exercisable no later than August 27, 2007, to terminate the PSA. Should Baseline elect to terminate the PSA, the Company will be entitled to the return of the earnest money deposit, less $200,000 to be retained by DSX as consideration for the removal of the assets from the market while the third party reserve report is being prepared.

Baseline intends to utilize a combination of debt and a convertible instrument in order to fund the purchase. Therefore, Baseline's ability to close the transaction is contingent upon Baseline's ability to raise sufficient capital and the failure to do so could result in DSX terminating the PSA and retaining the earnest money deposit.

The DSX assets are situated offset to the Blessing Field located in Matagorda County, south Texas, on trend with several prolific Frio fields. The Blessing Field has produced more than 300 Bcf of natural gas and 15 Mmbbls of crude oil from 19 Frio sands. As a result of a proprietary 3D seismic survey, DSX has drilled 12 successful wells to date, experiencing a 100% success rate. The field being acquired has established production in 5 separate fault blocks, with proved and probable reserves in 20 different sands located at depths of 8,000 to 12,000 feet.

The "New" Baseline Oil & Gas:

  • The DSX properties generate significant sustainable cash flow. The Blessing Field area has an extensive production history;
  • High degree of operational control: Baseline will operate a 100% working interest in both its Blessing and Eliasville properties;
  • Multi-year drilling inventory;
  • Excellent low risk PDNP and PUD opportunities can meaningfully ramp production and cash flow;
  • Significant probable locations within the same fault blocks;
  • Target high impact possible reserves in the other fault blocks in the same horizons;
  • Management estimates proforma proved reserves exceed 60 Bcfe, of which approximately 35% would be PDP and approximately 50% would be natural gas;
  • Balanced proforma mix of oil and natural gas reserves and production; and
  • Experienced management.

Thomas Kaetzer, Baseline's Chairman and Chief Executive Officer stated, "This is clearly a transformational acquisition for Baseline. The Company will become a substantial and focused E&P company, with the ability to materially increase our proforma production via the development of our Gulf Coast and north Texas assets, as well as the huge upside regarding the exploitation of our New Albany Shale project. This transaction will be immediately highly accretive to Baseline's production, cash flow and asset value, in keeping with management's ongoing commitment to build shareholder value."