Midland, Texas-based Doral Energy Corp. (OTCBB: DRLY) has entered into a definitive merger agreement with privately held San Antonio, Texas-based Pure Gas Partners II LP and subsidiary Pure Energy Group Inc.

Pure's current assets consist of approximately 865,000 non-operated gross acres (294,000 net) in New Mexico. Approximately 26,000 net acres are in southeastern New Mexico. Nearly all (98%) of Pure's acreage is either owned mineral rights or held by production (HBP), with ownership in 79 gross wells (seven net) with current net production of 230 barrels of oil equivalent per day.

Of the approximate 26,000 net acres in southeastern New Mexico, Pure management estimates that much of its current drilling inventory consists of horizontal opportunities in the emerging Bone Spring, Yeso, Abo and other proven formations in the Permian Basin. Pure is currently participating in two Bone Spring horizontal wells operated by Cimarex, in addition to participating in a Yeso horizontal well operated by Concho Resources.

Pure will transfer all of its assets to its subsidiary in exchange for the assumption of all the liabilities of Pure. Pure Energy Group will then merge with Doral Acquisition Corp., a subsidiary of Doral incorporated solely for the purpose of completing the deal. All of the outstanding shares of Pure's common stock will then be converted into shares of Doral's common stock.

Doral expects to complete a 1-for-55 reverse split of its common stock as a condition to closing. Subsequently, Doral's authorized capital is expected to be reduced from 2 billion shares of common stock, par value $0.001, of which some 136 million shares are currently outstanding, to 36.36 million shares of common stock, par value $0.001, of which 2.5 million shares are expected to be outstanding prior to the merger's completion.

Doral plans to issue to Pure an aggregate of roughly 10 million shares of the company's common stock following the completed merger, which will result in Pure owning approximately 80%, on a fully diluted basis, of Doral's total outstanding shares, and Doral shareholders owning approximately 20%. This will ultimately result in approximately 12.45 million shares issued and outstanding after the merger is complete.

As well, Doral will welcome the addition of three new directors, nominated by Pure, bringing the total number of the company's directors to five, three of which are expected to be independent directors. Post closing, Doral's management team will consist of Everett Willard Gray, II, as chief executive and chairman of the board; Larry Risley as president and chief operating officer; and Mark Stark as chief financial officer and treasurer. Gray is currently Doral's CEO, CFO, president, secretary and treasurer.

Gray says, "Once the merger is completed, both entities' shareholders will have an opportunity to participate in a potentially aggressive growth model, of which Pure's assets will be the initial catalyst along with Doral's business development opportunities, in order to obtain the goal of increasing shareholder value. Having access to a number of Bone Spring, Abo and Yeso drilling opportunities in southeastern New Mexico will provide a solid foundation for this anticipated growth."

The deal is expected to close by year-end 2010.

Doral focuses on identifying acquisitions that generate immediate cash flow from production primarily in the Permian Basin of Texas and New Mexico.