Penn Octane Corporation Announces that Rio Vista Energy Partners L.P. Subsidiaries Enter Into Definitive Agreements to Acquire Interests in Oil Producing Properties and Associated Pipeline Gathering Systems in Oklahoma

Business Wire,  Oct 30, 2007  

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Rio Vista, an Affiliate of Penn Octane, Signs Letter of Intent with Senior Secured Lender for Credit Facility of up to $30 Million in Connection with the Oklahoma Properties

Acquisitions by Rio Vista Subsidiaries Expected to Close In November 2007; Operations Expected to be Included in Rio Vista's Fourth Quarter Results

PALM DESERT, Calif. -- Penn Octane Corporation (OTCBB:POCC), or "Penn Octane", announced today that its affiliate, Rio Vista Energy Partners L.P., or "Rio Vista", an energy master limited partnership, and Rio Vista's wholly-owned subsidiaries, Rio Vista Penny LLC and Rio Vista GO LLC, have entered into three separate definitive agreements to acquire assets and/or equity including certain leasehold interests of oil and gas producing properties (the "Properties") and associated pipeline gathering systems from three privately held companies (the "Companies") based in East Central Oklahoma which have geographically contiguous operations. Rio Vista GP LLC, which is the general partner of Rio Vista Energy Partners L.P. and holder of certain incentive distribution rights, is a 75%-owned subsidiary of Penn Octane. The individual transactions are expected to close on or before November 19, 2007. In connection with the above agreements, Rio Vista has also entered into a letter of intent with a senior secured lender for the issuance of a replacement credit facility. The financial operations of the Properties are expected to be included in Penn Octane's and Rio Vista's consolidated fourth quarter results. In connection with the Oklahoma agreements, Rio Vista has recently filed with the Securities and Exchange Commission a Current Report on Form 8-K which more fully outlines the terms of the agreements and the letter of intent.

The Properties located in East-Central Oklahoma are situated in McIntosh, Haskell and Pittsburg Counties. The leases to be acquired comprise approximately 22,000 gross HBP (held by production) acres, a 25-mile pipeline that gathers natural gas from several Properties located in Haskell and Pittsburg Counties and a 40-mile pipeline that receives natural gas from leases in the Texanna area north of Lake Eufaula and delivers to the ONG-R-900 intrastate pipeline in McIntosh County. The Companies collectively control a majority interest in a total of 93 operated wells and 16 non-operated wells primarily from Booch sand, Hartshorne Coal Bed Methane, George's Fork and Spiro wells. One of the Companies is presently involved in the development of the shallow reserve targets. There are an additional 114 identified drilling locations in the upper formations with upside potential. Rio Vista's subsidiaries intend to explore the additional upside opportunities that exist in the deeper formations located on the Properties such as the Caney Shale and Woodford Shale. Based on recently completed engineering reports of the leased interests being acquired, the Properties have estimated natural gas reserves of 60.5 million MCF, of which approximately 9.1 million MCF and 51.4 million MCF are estimated to be comprised of proved developed reserves and proved undeveloped reserves, respectively.

Under the terms of the definitive agreements, the aggregate purchase price payable by Rio Vista Penny and Rio Vista GO in all three transactions is approximately $29.0 million, comprised of the assumption of senior secured debt of approximately $17.1 million (including accrued interest of approximately $0.6 million), assumption of $0.5 million of third party obligations and payment of $11.4 million to the Companies, paid as follows: the issuance of approximately $1.5 million of Rio Vista common units, the issuance of a short-term convertible note of $0.5 million to one of the Companies and $9.4 million in cash. Approximately $3.0 million of the funding for the cash payment to one of the Companies is to be funded through an additional loan made to Rio Vista at closing by the senior secured lender.

In connection with the agreements, Rio Vista Penny and Rio Vista GO have already paid to two of the Companies approximately $2.3 million in non-refundable deposits which are to be credited against the cash portion of the purchase price required at closing. The closing of the transactions are subject to completion of satisfactory due diligence by Rio Vista Penny and Rio Vista GO, execution of definitive agreements with the senior secured lender and other customary closing conditions.

About Penn Octane Corporation

Penn Octane is engaged in energy services, including the purchase and sale of gasoline and diesel fuel. Penn Octane began operations of its gasoline and diesel fuel reseller business in June 2004. By allocation to Penn Octane of portions of certain pipeline and terminal space located in California, Arizona, Nevada and Texas, Penn Octane is able to sell gasoline and diesel fuel at rack loading terminals and through bulk and transactional exchanges. In addition, Penn Octane owns a 75% interest in Rio Vista GP LLC, the general partner of Rio Vista Energy Partners L.P, an energy master limited partnership.