Baron Energy Inc. company history: the story so far

History

Baron Energy grew from a small Texas lease into a debt-funded oil producer through mergers and a 2014 acquisition, but by 2017 its audits for 2012 to 2016 remained unfinished.

2008-2009: A small lease and a share-funded bet

Baron Energy, formerly Nevwest Explorations Corp., took its new name in September 2008. On October 14, 2008 it bought 100% of the working interests in the Rendham Pool, Green Lease in Baylor County, Texas from Lucas Energy for $213,500. It also took on the well-plugging obligations. In the year to July 31, 2008 the lease earned $25,566 of revenue against $27,947 of direct operating costs.

In April 2009 Baron agreed to buy TMG Partners, LLC, which explores the Deep Yegua gas trend in South Texas, for 9,000,000 restricted shares. A May amendment raised that to 18,000,000 shares if all TMG members accepted, doubling the dilution. The filings describe Baron as an exploration-stage company with no revenues. The record shows no further mention of TMG.

2010: The Permian merger and a debt scramble

In December 2009 Baron signed a non-binding letter of intent to acquire assets from three private Texas partnerships. It completed a merger with Esconde Resources and Permian Legend Petroleum effective February 22, 2010, issuing 40,000,000 new shares so the former owners held 50%. Baron first redeemed 8,600,000 shares from founder Albert Abah, and a 1-for-2 reverse split in March 2010 left 40,000,000 shares. The assets were about 3,100 gross acres in the Permian Basin, producing about 39 barrels of oil equivalent a day. Ronnie Steinocher became CEO and Chairman and Lisa Hamilton CFO, and headquarters moved to Midland.

The merger brought debt. In March 2010 American State Bank gave notice of default on loans of $688,724.40 and $299,282.29 and threatened foreclosure. Baron also announced a non-binding term sheet for a $10 million equity line with Kodiak Capital Group, which was not mentioned again. In June 2010 the bank signed a new $1,000,000 loan and agreed not to pursue the defaults. On August 31 the loan was sold to Newton Energy, and Baron replaced it with a $1,006,000 note at 13.5% due August 2015. That month Steinocher took 420,168 shares in place of $50,000 of pay. In December Baron sold non-operated interests in Borden, Garza and Scurry Counties for $1.18 million.

2011: Settling with BaseLine

In March 2011 subordinated lender BaseLine Capital sued over a $500,000 note inherited from Permian Legend, claiming $299,813 was due. In May Baron settled through a restated loan: it paid $175,000 cash and signed a new $100,000 note at 8% due May 2015, with $40,000 forgiven if $60,000 was paid by October 27, 2011. It also assigned BaseLine 25% of its interest in the mortgaged properties. The same month it bought the Kirkpatrick '69' Lease in Garza County from Pronto Limited for $35,000 cash and 300,000 shares, adding about 3 barrels of oil equivalent a day. The record then goes quiet until 2014.

2014-2017: Ricochet and the unfinished audits

On July 28, 2014 new subsidiary Baron Production bought interests in Frio and LaSalle Counties from Ricochet Energy for $7,720,743. They covered 8,060 gross acres and 14 producing wells making about 204 barrels of oil a day. Funding came from a Petro Capital Energy Credit facility of up to $5,150,000 and a $6,100,000 sale of a limited-term royalty on oil to Petro affiliate PCEC Sub 1, with Baron guaranteeing the debts. Petro also received warrants for 5% of fully diluted shares. In August Baron created Series A Convertible Preferred stock and issued 2,852,354 shares at $1.00, 250,000 of them to Petro for cash and the rest in exchange for cancelling note debt and interest.

Baron hired MaloneBailey as auditor in October 2014 to audit fiscal years 2012 through 2016. On June 1, 2017 it resigned without issuing an opinion on any of those years. As of the July 21, 2017 filing no replacement auditor was named, and those audits remained unfinished.

Written from the 14 story beats below (2008 to 21 July 2017), which come from the company's own announcements and filings.

Beat by beat

The events that changed the company's story, in plain English, each written against everything known about the company at the time. The dot shows whether it was good, bad or neutral for shareholders.

2017

21 July
MaloneBailey, the auditor Baron hired in October 2014, resigned on June 1, 2017 (reported July 2017). It had been engaged to audit fiscal years ended July 31, 2012 through 2016 and review the related quarters, but the filing says it never issued an opinion on any of those years or completed audit procedures or reviews for any of them. The filing reports no disagreements and no reportable events. For a shareholder, this means the audits of those years, a thread open since the 2014 engagement, remain unfinished, and no replacement auditor is named in this filing.
auditor change

2014

11 Aug
Baron issued Series A Convertible Preferred Stock at $1.00 a share: 250,000 shares to Petro Capital Energy Credit for $250,000 cash (Aug 8, 2014), and 2,602,354 shares to 6 parties in exchange for cancelling the same amount of promissory note debt and interest (Aug 7, 2014). This converts debt to preferred equity, which can later convert to common stock and dilute holders.
capital raising announcement
1 Aug
On July 28, 2014 Baron's new subsidiary Baron Production bought oil and gas interests in Frio and LaSalle Counties, Texas from Ricochet Energy for $7,720,743 (89.10% to 100% working interests, 8,060 gross acres, 14 producing wells, current gross output of 204 barrels of oil a day). It was funded with a Petro Capital Energy Credit facility of up to $5,150,000 and a $6,100,000 sale of a limited-term overriding royalty on oil from existing wells to PCEC Sub 1, an affiliate of Petro. Baron also issued Petro warrants at $0.0175 for 5% of its fully diluted shares and created a 7,000,000-share Series A Convertible Preferred class. This is a much larger asset base than the small Permian interests before, with Baron guaranteeing the debts.
asset acquisition disposition

2011

10 May
Baron settled the BaseLine lawsuit through a restated loan: it paid $175,000 cash and signed a new $100,000 note at 8% due May 1, 2015, with $2,442 monthly payments from June 1, 2011 and a $650 monthly fee. The $40,000 of principal is forgiven if $60,000 is paid by Oct 27, 2011. Baron also assigned BaseLine 25% of its interest in the mortgaged properties, which BaseLine can take up on payout or Oct 27, 2011 at the earlier date. Separately, Baron bought Pronto Limited's interest in the Kirkpatrick '69' Lease and a salt water disposal agreement in Garza County for $59,000 ($35,000 cash and 300,000 shares at $0.08), producing about 3 barrels of oil equivalent a day.
asset acquisition disposition
22 Mar
On March 16, 2011 Baron was served with a lawsuit from subordinated lender BaseLine Capital, which says Baron breached a $500,000 note (inherited from Permian Legend in the 2010 merger) and that senior lender Newton breached a subordination agreement. BaseLine says $299,813 is due; the note matured Aug 1, 2010 and is secured by thirteen properties. BaseLine's January 2011 default letter cited the December 2010 property sale. Baron says it will defend and also explore a settlement, with no assurance of success.
debt financing

2010

27 Dec
On December 21, 2010 Baron sold all its non-operated working interests in Borden and Garza Counties and certain ones in Scurry County, Texas, to the McCabe Family Trust and Rochford Living Trust (50% each) for $1.18 million cash, effective December 1, 2010. These interests produced about 15 barrels of oil equivalent per day net, part of the assets gained in the February 2010 merger. The filing does not say how the cash will be used.
asset acquisition disposition
23 Sept
On August 31, 2010 American State Bank sold the loan to Newton Energy, Inc., and Baron replaced it with a $1,006,000 note at 13.5% interest maturing August 25, 2015, with interest-only payments of $11,317.50 a month until September 2011, then $27,238.78 a month. The new note releases the officers' share pledges and guarantees, while the property security stays in place. Prepayment before August 31, 2011 carries a penalty of $135,810 less interest paid. Separately, Baron issued 420,168 shares to CEO Steinocher in place of $50,000 cash pay for Feb 22 to May 12, 2010. The Kodiak equity line is not mentioned.
capital raising announcement
8 June
This resolves the March 2010 default notice: on June 2, 2010 Baron signed a $1,000,000 loan agreement with American State Bank (effective May 1), as two notes of $550,000 and $450,000 maturing September 1, 2010, and the bank agreed not to pursue the earlier defaults. The loan is secured by mortgages on Baron's properties and guaranteed by Steinocher, Hamilton and Pierce-Hamilton Energy Partners, who pledged about 3.0 million Baron shares. It also includes a $50,000 letter of credit for the Texas Railroad Commission that the bank will not renew beyond August 1, 2011.
debt financing
11 Mar
Baron disclosed that it assumed loans from American State Bank in the Esconde/Permian merger and that on March 4, 2010 the bank gave notice of default, saying $688,724.40 (Permian) and $299,282.29 (Esconde), plus interest, were owed after the loans matured March 1, 2010. The bank threatened to foreclose on the pledged oil and gas properties in 10 days and to seek a deficiency judgment. Baron also announced a non-binding term sheet for up to a $10 million equity line with Kodiak Capital Group over three years, which depends on final agreements, and a March 13 conference presentation.
debt financing
26 Feb
Baron completed its merger with Esconde Resources and Permian Legend Petroleum effective Feb 22, 2010, issuing 40,000,000 new shares so the former owners hold 50% of Baron (80,000,000 shares outstanding). This is the deal outlined in the Dec 2009 Pertex letter of intent, now done by merger (the filing names only Esconde and Permian as acquired). Baron first redeemed 8,600,000 shares from founder Albert Abah, and a 1-for-2 reverse split effective March 4, 2010 cuts shares to 40,000,000. The assets are about 3,100 gross acres in the Permian Basin of west Texas with current net production of about 39 barrels of oil equivalent per day. Esconde and Permian's Ronnie Steinocher (CEO, Chairman) and Lisa Hamilton (CFO) replace Michael Maguire, who resigned, and HQ moves to Midland, Texas. Audited financials and pro forma figures are still to come.
business combination

2009

16 Dec
On December 15, 2009 Baron signed a non-binding letter of intent to acquire oil and gas assets from three private Texas partnerships (Pertex Production, Esconde Resources, Permian Legend Petroleum) across nine Texas counties, with working interests of 5% to 100%. Payment would be in restricted Baron stock so that, if all assets are acquired, Pertex-related holders own 50% of Baron. Completion depends on due diligence and approval of final agreements, so it is not yet a done deal.
material agreement
11 May
This amendment changes the TMG Partners deal: the share count rises from 9,000,000 to 18,000,000 restricted shares if all TMG members accept. A first closing with majority holders covers 11,230,000 shares, with 6,770,000 more for the remaining holders. This doubles the dilution stated in the April filing. The amendment also gives the agreement date as April 6, versus April 7 in the original.
asset acquisition disposition
13 Apr
On April 7, 2009 Baron agreed to acquire 100% of TMG Partners, LLC in exchange for 9,000,000 restricted Baron shares. TMG (founded August 11, 2008) explores the Deep Yegua gas trend in South Texas. The filing describes Baron as an exploration-stage company with no revenues, and for shareholders the deal means a large issuance of new shares.
asset acquisition disposition

2008

14 Oct
Baron bought 100% of the working interests in the Rendham Pool, Green Lease (Green K and Green M leases) in Baylor County, Texas from Lucas Energy for $213,500, closing October 14, 2008. It also took on all liabilities, including well-plugging obligations and a duty to deliver 225 barrels of oil to a third party. The properties' revenue was $25,566 against $27,947 of direct operating expenses for the year to July 31, 2008, and reserves were 4,001 barrels at that date.
asset acquisition disposition