Document:

EMPLOYMENT AGREEMENT

            EMPLOYMENT AGREEMENT is effective as of December 5, 2006 (this
"Agreement") between Baseline Oil & Gas Corp., a Nevada corporation having its
principal place of business at 20022 Creek Farm, San Antonio, Texas 78259 (the
"Employer" or the "Company"), and Tom Kaetzer, an individual residing in the
State of Texas (the "Executive").

            WHEREAS, the Company and Executive desire that Executive's
relationship with the Company be governed by this Agreement and by the exhibits
annexed hereto;

            NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, and for other good and valuable consideration, the
parties agree as follows:

      1. Employment: The Employer hereby employs the Executive and the Executive
hereby accepts employment upon the terms and conditions hereinafter set forth.

      2. Title; Responsibilities; Reporting: During the Term of this Agreement,
the Executive shall diligently and faithfully: (a) serve the Company in the
capacity of President/Chief Operating Officer, and/or in whatever similar
executive capacities as shall from time to time be assigned to the Executive by
the Company's Board of Directors or by such other person(s) as directed by the
Board of Directors; (b) report directly to the Company's Chairman and/or Vice
Chairman; (c) discharge and carry out all duties and responsibilities as may
from time to time be assigned, and such directions as may from time to time be
given, to the Executive by the Company's Chairman, Vice Chairman and/or Board of
Directors and (d) abide by and carry out the policies and programs of the
Company in existence or as the same may be changed from time to time.

      3. Exclusivity: All services to be provided by the Executive under this
Agreement shall be performed by the Executive personally. During the term of
this Agreement, the Executive shall devote substantially all of the Executive's
business time, attention and energies and all of his skills, learnings and best
efforts to the business of Company. At all times during the term of this
Agreement, the services required of Executive and the location at which he
performs such services shall not require that he reside outside of Houston,
Texas, except for travel in the ordinary course.

      4. Term: The initial term of this Agreement shall commence as of December
5, 2006 (the "Commencement Date") and shall end on December 30, 2008, unless
sooner extended by agreement of the parties or terminated in accordance with the
provisions of this Agreement. The date on which this Agreement is scheduled to
expire (i.e. December 30, 2008 or such later date to which this Agreement may be
extended by agreement of the parties) is referred to as the "End Date". No more
than one hundred twenty (120) nor less than and sixty (60) days prior to the an
End Date (each such sixty (60) day period is referred to as a "Renegotiation
Period"), the Company and the Executive may agree in writing to extend this
Agreement for an additional term. If during any Renegotiation Period the Company
and Executive fail to agree upon an extension of this Agreement, this Agreement

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shall terminate as of the End Date of the then current term notwithstanding the
provision of services by Executive after the end of the then current term. The
term of this Agreement, whether as originally scheduled, extended by agreement
or shortened pursuant to a termination in accordance herewith is referred to as
the "Term."

      5. Base Compensation: During the Initial Term of this Agreement, the
Employer shall pay to the Executive a base salary at the rate of $190,000 per
year. The salary shall be paid in monthly installments on the first day of each
month and shall be subject to such deductions by the Employer as are required to
be made pursuant to law, government regulations or order. The Executive
understands and agrees that the Executive is an exempt Executive as that term is
applied for purposes of Federal or State wage and hour laws, and further
understands that the Executive shall not be entitled to any compensatory time
off or other compensation for overtime.

      6. Performance Bonus: Provided that the Executive remains in the employ of
the Company on December 5, 2007 (the "First Anniversary Date"), the Executive
shall be entitled to a performance bonus of $50,000, payable to him on or before
December 15, 2007. In addition, during the second year of the Initial Term and
thereafter (if this Agreement is extended), Executive may be entitled to a
performance bonus, solely at the discretion of the Company's Board of Directors.
Where the Executive's employment hereunder is terminated prior to the end of a
fiscal year by reason of death, "Disability" (as defined in Section 12 below),
expiration of the term hereof, "Termination Without Cause" (as defined in
Section 17 below), or "Resignation for Good Reason" (as defined in Section 16
below), then the Executive shall still be eligible for payment of a performance
bonus for such fiscal year, provided that the amount of such performance bonus
shall equal the product of (i) the amount of the performance bonus that would
have been payable for the entire fiscal year had the Executive remained employed
for the entire fiscal year and (ii) a fraction, the numerator of which shall
equal the number of days the Executive was employed hereunder during such fiscal
year and the denominator of which shall equal 365.

      7. Issuance of Stock Options: Concurrently with the execution of this
Agreement, Employer shall grant five year options to the Executive, exercisable
for (i) up to 1,000,000 shares of the Company's common stock, at an exercise
price equal to the closing sale price of the Company's common stock on December
19, 2006, as reported on the OTC Bulletin Board, (ii) up to 500,000 shares, at
an exercise price of $0.60 per share and (iii) up to 500,000 shares, at an
exercise price of $1.00 per share. The Option Agreement shall provide that
one-third of each such option shall be immediately exercisable, and that
one-third of each such option shall vest on each of the First Anniversary Date
and Second Anniversary Date, provided that the Executive remains in the employ
of the Company on such dates.

      8. Fringe Benefits: During the Term of this Agreement, the Executive shall
be entitled to major medical and full hospital insurance for the Executive, his
spouse and immediate dependents, at such time as the Company procures such
insurance, provided that the Executive and his family are insurable at "standard
rates". Until such time, the Company agrees to reimburse the Executive for any
premiums paid by the Executive to maintain health insurance for him and his
family. The Executive shall also be entitled to such disability, life insurance,
and other similar benefits as may be made available to other senior officers of
the Company under such group benefit plans and/or programs as may be implemented
and maintained by the Company from time to time, subject to any eligibility,
copayment and waiting period requirements under or applicable to any such
benefit plans and/or programs. The Executive acknowledges and agrees that the

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Company has the right, in its sole discretion, to amend, modify or terminate any
such benefit plan or program at any time and for any reason or for no reason.
The Executive's entitlement to such benefits shall end upon the termination of
his employment with the Company, however caused, except as provided (a) by
applicable law or (b) by the express terms of any such group benefit plan or
program maintained by the Company.

      9. Vacation, Etc.: During the Term of this Agreement, the Executive shall
be entitled to four (4) weeks paid vacation to be taken at such time or times as
shall be consistent with the proper performance by the Executive of his duties,
and which shall accrue ratably during the fiscal year. No unused vacation,
holidays, sick leave or personal days may be carried forward from year to year.
In the event that the Executive's employment terminates by virtue of
"Termination Without Cause", "Resignation for Good Reason", death or disability,
then the Executive shall be entitled to payment for any accrued but unused
vacation days during the year such termination occurs.

      10. Expense Reimbursement; Travel Policy: The Company shall provide the
Executive with such reasonable business lodging and travel expense
reimbursements as are consistent with the Company's policies in effect from time
to time as they pertain to senior officers of the Company. The Executive shall
be entitled to an automobile allowance of $650 per month. All reimbursements by
the Company provided for in this Agreement are conditioned upon the Executive's
submission to the Company of reasonably satisfactory documentation and an
itemized account for such expenses within a reasonable period after they are
incurred. Expense reports and requests for reimbursement which are submitted
later than two months after the expense is incurred will not be reimbursed
without the approval of the Company's Chief Financial Officer.

      11. Other Benefit Plans: As soon as practicable following the hiring of
additional employees, the Company may adopt such stock option plans, and
retirement savings plans and similar benefit plans as the Board deems
appropriate. Executive shall be eligible to participate in such plans.

      12. Death of Executive: In the event of the Executive's death during the
Term of this Agreement, the Employer's obligations and agreements under this
Agreement shall automatically terminate as of the date of such death, and in
full satisfaction thereof, the Company shall pay to the Executive's estate any
base salary and pro rata performance bonus earned and unpaid through the date of
such death and any business expenses or other fringe benefits or otherwise due
to Executive. The Executive's estate shall also be entitled to payment for (i)
any bonus earned in the year preceding such termination but not yet paid and
(ii) accrued but unused vacation days during the year such termination occurs.
Such event shall not be deemed a "Termination Without Cause" as defined below.

      13. Disability of Executive: If the Executive shall, during the term of
this Agreement, suffer a "Disability," (as defined, from time to time, in a
disability plan that the Company may maintain for the benefit of its senior

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officers (a "Disability Plan") or, whenever no such Disability Plan exists, as
defined in accordance with the meanings on Exhibit A hereto), then the Employer
shall have the right to terminate this Agreement by written notice of such
Disability to the Executive, whereupon the Employer's obligations and agreements
under this Agreement shall automatically terminate as of the date of such
notice, and in full satisfaction thereof, the Company shall pay to the Executive
any base salary and pro rata performance bonus earned and unpaid through the
date of such notice (less any payments received by the Executive under a
Disability Plan) and any business expenses or other fringe benefits otherwise
due to Executive. Executive shall also be entitled to payment for (i) any bonus
earned in the year preceding such termination but not yet paid and (ii) accrued
but unused vacation days during the year such termination occurs. No such
termination shall be deemed a "Termination Without Cause" as defined below. All
other obligations of the Employer under this Agreement shall automatically
cease, and the Executive shall not be entitled to any other salary, payments or
benefits otherwise payable under this Agreement, except as otherwise required by
law.

      14. Resignation Notice; Termination: The Executive agrees to give sixty
(60) days' prior written notice to the Company of any decision by the Executive
to resign during the term of this Agreement (such notice hereinafter referred to
as a "Resignation Notice"), provided, however, that in the case of the
Executive's resignation for "Good Reason" as defined in Section 17 below, only
fourteen (14) days' prior written notice shall be required. The Executive
acknowledges and understands that these notice periods are for the exclusive
benefit of the Company, and do not confer any employment obligation on the
Company. If the Company receives any such Resignation Notice, the Company may
elect, in its sole discretion and for any reason or for no reason, to terminate
the Executive's employment, either immediately or at any point during the period
indicated in such notice.

      15. Post-Resignation Actions: If the Executive decides to resign from the
Executive's employment with the Company, the Executive agrees to make no public
announcement and no statement to persons or entities doing business with the
Company concerning the Executive's departure prior to the Executive's
termination date without the written consent of the Company, and to continue
faithfully performing and discharging the Executive's duties and
responsibilities for the Company from the date of such Resignation Notice until
such termination date.

      16. Post-Resignation Obligations: Except as provided below with respect to
resignations for "Good Reason," no such resignation (or termination by the
Company following a Resignation Notice) shall be deemed to be or treated as if
it was a "Termination Without Cause" as defined below. The Executive agrees and
understands that, in the event of any such resignation (or termination by the
Company following a Resignation Notice), the Executive shall be entitled to
receive the Executive's base salary from the Employer at the rate provided in
this Agreement through the date of termination of the Executive's employment and
any business expenses otherwise due to Executive. The Executive shall also be
entitled to payment for any (i) bonus earned in the year preceding such
resignation but not yet paid and, in the event of a "Resignation for Good
Reason", accrued but unused vacation days during the year such resignation

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occurs. All other obligations of the Employer under this Agreement shall
automatically cease, and the Executive shall not be entitled to any other
salary, payments or benefits otherwise payable under this Agreement, except as
otherwise required by law. The parties further agree and understand that, in the
event of any such resignation (or termination by the Company following a
Resignation Notice), the Executive's obligations and agreements under Sections
21 through 24 hereof shall continue in full force and effect in the manner and
on the terms set forth herein.

      17. Resignation for Good Reason: If the Executive resigns for "Good
Reason" (as defined below), then such a resignation (a "Resignation for Good
Reason") shall be treated hereunder as if it were a "Termination Without Cause"
as defined in Section 18 below. "Good Reason" means any of the following
failures or conditions which shall remain uncured twenty (20) days after written
notice of such failure or condition is received by the Company from the
Executive: (i) the failure of the Company to continue the Executive in the
position of President/Chief Operating Officer of the Company (or such other
senior executive position as may be offered by the Company and which the
Executive in his sole discretion may accept); (ii) material diminution by the
Company of the Executive's responsibilities, duties, or authority in comparison
with the responsibilities, duties and authority held during the six month period
following the Commencement Date, or assignment to the Executive of any duties
inconsistent with the Executive's position as the senior executive officer of
the Company (or such other senior executive position as may be offered by the
Company and which the Executive in his sole discretion may accept); (iii)
failure by the Company to pay and provide to the Executive the compensation and
benefits provided for in this Agreement; (iv) the requirement that Executive
relocate his residence outside of Houston, Texas; or (v) the sale of all or
substantially all of the Company's assets or the acquisition of greater than 50%
of the Company's outstanding capital stock by a single purchaser.

      18. Termination Without Cause: The Executive's employment under this
Agreement may be terminated at any time by the Company, without cause, upon
fourteen (14) days' written notice to the Executive (such termination referred
to throughout this Agreement as a "Termination Without Cause"). In the event of
any such Termination Without Cause, the Company agrees to pay to the Executive
as severance pay, an amount equal to twelve (12) months base salary (at then
current rate) plus pro rata performance bonus earned and unpaid through the date
of such termination and any business expenses and other fringe benefits
otherwise due to the Executive (the "Severance Payment"). The Severance Payment
shall be payable in twelve (12) equal monthly installments commencing on the
first day of each month following the date of termination. The Executive shall
also be entitled to payment for (i) any bonus earned in the year preceding such
termination but not yet paid and (ii) accrued but unused vacation days during
the year such termination occurs. All other obligations of the Employer under
this Agreement shall automatically cease, and the Executive shall not be
entitled to any other salary, payments or benefits otherwise payable under this
Agreement, except as otherwise required by law.

      19. Termination For Cause: The Employer, upon a vote of the Company's
Board of Directors (excluding the Executive) shall be entitled to immediately
terminate the Executive's services in any of the following circumstances, each
of which shall constitute "cause" for such termination:

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      (a) the breach by Executive, in any material respect, of this Agreement
(including, without limitation, the refusal or other failure by Executive to
perform any of Executive's duties hereunder other than a failure to perform
resulting from death or physical or mental disability) and failure by Executive
to cure such breach within ten (10) days of written notice thereof from the
Company;

      (b) the commission by Executive of any act of dishonesty, fraud,
intentional material misrepresentation or moral turpitude in connection with his
employment, including, but not limited to, misappropriation or embezzlement of
any funds of the Company or any of its affiliates;

      (c) the commission by Executive of any (1) willful misconduct or gross
negligence, or (2) intentional act having the effect of injuring the reputation,
business or business relationships of the Company or any of its affiliates, and
which intentional act would not reasonably be deemed to be in the best interests
of the Company;

      (d) the entering by the Executive of a plea of guilty or nolo contendere
to, or the conviction of Executive for, a crime (other than a routine traffic
offense) which carries a potential penalty of imprisonment for more than ninety
(90) days and/or a fine in excess of Ten Thousand Dollars ($10,000);

      (e) Executive's abuse of alcohol, prescription drugs or controlled
substances to a degree which interferes with his performance on behalf of the
Company;

      (f) Executive's deliberate disregard of any lawful material rule or policy
of the Company or order of the Company's Board of Directors and failure to cure
the same within ten (10) days of written notice thereof from the Company; or

      (g) excessive absenteeism of Executive other than for reasons of illness,
after written notice from the Company with respect thereto.

      If the Executive is terminated for any of the causes referred to in the
above sub-paragraphs (a) through (g), all obligations of the Employer under this
Agreement (except for obligations specifically referred to as continuing) shall
automatically cease, and the Executive shall not be entitled to any salary,
payments or other benefits otherwise payable under this Agreement that arise
after the last day of employment. The Executive shall be entitled to payment for
any bonus earned in the year preceding such termination but not yet paid. The
parties further agree and understand that, in the event of any such Termination
for Cause, the Executive's obligations and agreements under Sections 21 through
24 hereof shall continue in full force and effect in the manner and on the terms
set forth herein.

      20. Payment Upon Expiration of Term: In the event that this Agreement
expires by the arrival of an End Date without a prior termination or
resignation, the Company agrees to pay to the Executive his base salary and pro
rata performance bonus earned and unpaid through the date of such expiration and
any business expenses or fringe benefits otherwise due to the Executive.

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Executive shall also be entitled to payment for any bonus earned in the year
preceding the expiration of the Agreement but not yet paid and (ii) accrued but
unused vacation days during the year such expiration occurs. All other payments,
benefits or arrangements provided by the Company shall cease immediately, except
as otherwise required by law or the terms of any plan maintained by the Company.
Notwithstanding the foregoing, the parties further agree and understand that, in
the event of any such expiration, the Executive's obligations and agreements
under Sections 21 through 24 hereof shall continue in full force and effect in
the manner and on the terms set forth herein.

      21. Noncompetition:

      (a) The Executive expressly acknowledges that, in order to protect the
Company, and persons and entities that do business with the Company, it is an
essential condition of his employment that the Executive agrees that during the
Term of this Agreement and (unless this Agreement is terminated as a result of a
Termination Without Cause or a Resignation For Good Reason):

      (i)   for a period of one (1) year thereafter, the Executive will not
            directly or indirectly, for his own account or on behalf of any
            other person or as an employee, consultant, manager, agent, broker,
            stockholder, director or officer of a corporation, investor, owner,
            lender, partner, joint venturer, or otherwise engage in any business
            which is then directly engaged in the exploration, drilling or
            production of natural gas or oil, within a ten (10) mile radius of
            any area leased by the Company or in which the Company holds a
            working interest;

      (ii)  for a period of one (1) year thereafter (i) solicit, entice or
            induce any Customer (as defined below) of the Company to cease or
            limit its business with the Company (except if and to the extent
            directed to do so by the Chairman, Vice Chairman or Board of
            Directors of the Company), or to become a customer, supplier, vendor
            or client of any other person (including, without limitation,
            Executive, individually) or entity engaged in any activity or
            business competitive with the Company if as a consequence thereof
            such party shall reduce the business it does with the Company or
            (ii) interfere with the relationship between the Company and any
            Customer, and Executive shall not cause, assist or facilitate any
            person or entity in taking any such prohibited actions;

      (iii) for a period of one (1) year thereafter, solicit, attempt to solicit
            or entice away from the Company's employment, any employee of the
            Company, or disrupt or interfere with, or attempt to disrupt or
            interfere with, the Company's relationship with any such person, and
            Executive shall not cause, assist or facilitate any person or entity
            in taking any such prohibited action;

      (iv)  disparage the Company or any of its shareholders, directors,
            officers, employees or agents or take any actions that are harmful
            to the Company's goodwill with its customers, employees or the
            public; and

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      (v)   engage in any act or practice the purpose of which is to evade the
            provisions of this covenant not to compete or to commit any act
            which adversely affects the business of the Company.

                  For purposes of this Agreement, a "Customer" of the Company
shall mean any person or entity, who or which is, or was at any time within the
prior one year period, a purchaser of goods or services from the Company, a
landlord, sublandlord, licensor, vendor, licensee or supplier of (or prospective
purchaser, landlord, sublandlord, licensor, licensee or supplier, provided the
Company was in active discussions with such party prior to the termination of
this Agreement), to or from the Company, as the case may be.

      (b) It is understood by the Executive that the covenants contained in this
Section 21 are essential elements of this Agreement and that, but for the
agreement of the Executive to comply with such covenants, the Company would not
have agreed to enter into this Agreement and would not pay Executive the agreed
compensation for his services. Executive acknowledges that the provisions of
this Section 21 are reasonable and necessary for the protection of the Company
and that enforcement of the provisions of this Section 21 shall not result in an
unreasonable deprivation of the right of Executive to earn a living. The
existence of any claim or cause of action of Executive against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants. The covenants of
Executive in this Section 21 shall be construed as agreements independent of any
provision in this Agreement. In the event a court of competent jurisdiction
determines that the provisions of this Section 21 are excessively broad as to
duration, geographical scope or activity, it is expressly agreed that Section 21
shall be construed so that the remaining provisions shall not be affected, but
shall remain in full force and effect, and any such overbroad provisions shall
be deemed, without further action on the part of any person, to be modified,
amended and/or limited, but only to the extent necessary to render the same
valid and enforceable in such jurisdiction.

      22. Non-Disclosure of Confidential Information:

      (a) The Executive acknowledges and agrees that the Executive's services
for the Company shall bring the Executive into contact with sensitive or secret
information relating to the Company, its successors, subsidiaries, assigns,
officers, Executives, associated entities and/or agents including, but not
limited to (i) information concerning the objectives, plans, commitments,
contracts, leases, operations, executives, methods, market investigations,
surveys, research, records, and costs and prices of the Company and/or the
Company's subsidiaries or associated entities, (ii) information concerning the
identities, objectives, plans, preferences, needs, requests, specifications,
commitments, contracts, operations, methods and records of the Company's and/or
its subsidiaries' or associated entities' lenders, prospective lenders,
investors, owners and/or prospective owners, and (iii) any and all information,
trade secrets or ideas that give the Company or its subsidiaries or associated
entities the opportunity to obtain an advantage over such competitors of the
Company or of such subsidiaries or associated entities that do not know or use
such information, trade secrets or ideas (the "Confidential Information").

      (b) The Executive further understands and acknowledges that Confidential
Information includes not only recorded or written information, but information
that the Executive can recall or reconstruct from the Executive's memory.

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      (c) The Executive agrees that he will, at all times, faithfully hold all
such Confidential Information in the strictest of confidence and will, at all
times, use his best efforts and highest diligence to keep such Confidential
Information secret, to guard against its disclosure, and never, directly or
indirectly, to disclose or divulge any such Confidential Information to any
person, company, firm or other entity, or to use the same, except that (i) the
Executive may use Confidential Information as necessary to perform his duties of
employment with the Company, (ii) the Executive may disclose Confidential
Information to those within the Company who have a need to know it in the
performance of their duties for the Company, (iii) the Executive may disclose
Confidential Information to parties outside the Company when, as and if he is
expressly directed to do so by the Executive's supervisors within the Company,
and (iv) the Executive may disclose Confidential Information as expressly
directed by judicial process, provided that the Executive has promptly, and
prior to making such disclosure, provided a copy of such judicial process to the
Company and the Company does not intervene to oppose such disclosure. The
Executive shall use his best efforts to afford the Company sufficient time to
intervene to oppose any such disclosure, including, if necessary, seeking
reasonable extensions of the Executive's time to make such disclosure.

      (d) The Executive shall continue to abide by all of his obligations under
this Agreement respecting Confidential Information not only during his
employment with the Company, but also for all time after any termination,
resignation or expiration of his employment with the Company, however caused.

      (e) Notwithstanding the foregoing, after any termination or resignation of
the Executive from his employment with the Company, Confidential Information
shall not include, and the Executive shall not be restricted from divulging or
using, any information which the Executive can demonstrate (i) is or becomes
generally available to the public other than as a result of a disclosure by the
Executive, (ii) was available to the Executive on a non-confidential basis prior
to its disclosure to the Executive by the Company or any of its subsidiaries or
associated entities, or (iii) becomes available to the Executive on a
non-confidential basis from a source other than the Company or any of its
subsidiaries or associated entities, provided, however, that such source was not
bound by a confidentiality agreement with the Company or any of its subsidiaries
or associated entities, or was not otherwise prohibited from transmitting such
information to the Executive.

      (f) The Executive agrees that upon any termination, resignation or
expiration of his employment with the Company, however caused, the Executive
shall deliver to the Company all writings, documents, recordings, computer discs
or other media of recordation or storage in his possession, custody or control
containing any Confidential Information (including, without limitation, all
duplicates and copies), shall relinquish access to any computer maintained by or
for the benefit of the Company or any of its subsidiaries or associated
entities, and shall purge all such Confidential Information (in whatever form,
including electronic data) from any electronic media or storage devices,
including computers, in the Executive's possession, custody or control. To
insure compliance with this Agreement, at the time of such termination,
resignation or expiration, the Executive shall provide the Company with a sworn
statement, duly notarized, that the Executive has performed each and every
agreement and obligation contained or referred to in this Section.

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      23. Company Property: All inventions, improvements, systems, designs,
ideas, business plans, sales techniques, approaches, surveys, prospect books,
publications, memoranda, customer lists, files, notes, records, videotapes or
any other business documentation or products (including, without limitation,
Confidential Information) that the Executive makes or conceives (either
individually or jointly with others) or that are made available to the Executive
during his employment with the Company and until any termination, resignation or
expiration of such employment for any reason, relating to and connected with his
employment, or that the Executive utilizes in carrying out his duties or
responsibilities to the Company (the "Property"), shall be the Company's
exclusive property, and the Executive assigns to the Company all of his rights,
if any, in and to all such Property.

      24. Trade Names, Trademarks and Copyright: During his employment with the
Company, and continuing for all time after any termination, resignation or
expiration of such employment for any reason, the Executive agrees that he shall
never have or claim any right, title or interest in any trade name, trademark or
copyright (statutory or common law) belonging to or used by the Company, its
subsidiaries, successors, assigns or associated entities, and shall never have
or claim any right, title or interest in any material or matter of any sort,
prepared for or used in connection with advertising, solicitation, circulation,
editorial content or promotion of the business of the Company, its subsidiaries,
successors, assigns or associated entities, whether produced, prepared or
published in whole or in part by the Executive. The Executive recognizes that
the Company and/or its subsidiaries or associated entities now have and shall
hereafter have and retain sole and exclusive rights in and to any and all such
trade names, trademarks, copyrights, material and matter.

      25. Injunctive Relief: The Executive expressly acknowledges and agrees
that the Property and the Confidential Information are of a special, unique,
unusual, extraordinary and intellectual character which gives them a peculiar
value, and that a breach by the Executive of any of the restrictive covenants
contained in paragraphs 21 through 24 herein will cause the Company irreparable
injury and damage for which there is no adequate remedy available at law. The
Executive further expressly acknowledges and agrees that the Company shall be
entitled, in addition to any remedies available at law, to injunctive or other
equitable relief to require specific performance, or to prevent a breach, of any
provision of this Agreement by the Executive without any requirement or showing
that the Company has suffered any damages from such breach.

      26. Further Instruments: Each of the Company and the Executive shall
execute, acknowledge, deliver and procure the execution, acknowledgment and
delivery to the other of any and all further instruments which the other may
reasonably deem necessary or expedient to carry out or effectuate the purposes
or intent of this Agreement.

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      27. Successors and Assigns: This Agreement shall not be assignable by the
Company without the prior consent of the Executive, which shall not be
unreasonably withheld. For purposes of this Agreement a transfer of this
Agreement in connection with a merger, sale of a majority of the outstanding
shares or consolidation of the Company or a sale of substantially all of the
Company assets shall not constitute an assignment. This Agreement shall be
binding upon the successors, heirs, executors and personal representatives of
Executive. This Agreement contemplates the rendition of personal services by
Executive and is not assignable by the Executive.

      28. Savings Clause: If any term or provision of this Agreement or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Agreement shall be valid and be enforced to the
fullest extent permitted by law. The Company's rights and remedies provided for
in this Agreement or by law shall, to the extent permitted by law, be
cumulative.

      29. Governing Law and Construction: Any and all differences and disputes
of whatever nature arising out of or relating to this Agreement (including,
without limitation, the negotiation, execution, performance or termination of
this Agreement) shall be governed by the laws of the State of Texas applicable
to contracts made, negotiated and to be performed entirely in such State without
giving effect to its principles of conflicts of laws. With respect to all such
differences and disputes, the parties agree and consent to be subject to the
exclusive jurisdiction of the state and federal courts located in the State of
Texas and consent to the exclusive venue of Texas.

      30. Notices: All notices to be given under this Agreement shall be in
writing and shall be given by hand, by overnight courier services which obtain
acknowledgment of receipt or by certified or registered mail, return receipt
requested, addressed to the party receiving such notice (each of the foregoing
being referred to as "Written Notice"), or by facsimile transmission, such
transmission being effective as of the date thereof if followed within ten (10)
business days by Written Notice, as follows:

      (a) if to the Company, to the Company's address set forth above, with a
copy to Eaton & Van Winkle, 3 Park Avenue, 16th Floor, New York, New York,
10016, Att: Matthew S. Cohen, Esq;

      (b) if to the Executive, to the Executive's address on record with the
Company; or

      (c) to either party at such other addresses as shall have been specified
in a notice similarly given.

      31. Freedom to Execute Agreement: The Company and the Executive each
represent, warrant and agree that they are free to enter into this Agreement,
and that they are not subject to any obligations or disability which would
prevent them from or interfere with their fully keeping and performing all of
the covenants and conditions to be kept or performed under such agreements. The
Company and Executive further represent, warrant and agree that they have not

                                      -11-
<PAGE>

made and will not make any grant or assignment which conflicts with or impairs
the complete enjoyment of the rights and privileges granted to the Company and
the Executive under this Agreement. The Executive has had the opportunity to
consult with his personal attorney and to negotiate this Agreement at
"arms-length".

      32. Entire Agreement: This Agreement and the agreements annexed as
appendices hereto are intended together to constitute the entire agreement
between the Company and the Executive relating to the subject matters of such
agreements, and all prior negotiations and understandings of the parties have
been merged in such agreements. No modification of any such agreements shall be
valid unless in writing and executed by the parties hereto.

      33. Waiver of Breach: The waiver of a breach or default of or under any
provision of this Agreement shall not be deemed a waiver of any other such
breach or default of any kind or nature.

      34. Approvals: This Agreement has been approved by the necessary vote of
the Company's Board of Directors of the Company.

                                      -12-
<PAGE>

      IN WITNESS WHEREOF, the parties have signed this Agreement as of the date
above written.

Employer:                                  Executive:
BASELINE OIL & GAS CORP.

By: /s/ Barrie M. Damson                   /s/ Tom Kaetzer
    -------------------------------        ----------------------------------
    Barrie M. Damson                       Tom Kaetzer
    Chairman & CEO

<PAGE>

                                    Exhibit A

      For the purposes of this Employment Agreement, whenever the term
"Disability" is not defined in a Disability Plan that the Company may maintain
for the benefit of its senior officers, that term shall mean that, for a period
of "120 continuous days", the Executive is "limited" form performing the
"material and substantial duties" of his "regular occupation" due to his
"sickness" or "injury."

      For purposes of this definition:

      "120 continuous days" shall mean 120 days of sickness or injury which
meets all of the other criteria for a Disability as defined herein, with no
lapse of greater than 30 days (consecutively or in the aggregate);

      "limited" from performing a duty or function means that the Executive is
unable to perform such duty or function;

      "material and substantial duties" means duties that are normally required
for the performance of the Executive's "regular occupation" and cannot be
reasonably omitted or modified;

      "regular occupation" means all of the functions that the Executive was
routinely performing prior to the onset of the condition or conditions that
resulted in the Company's decision to terminate the Executive's employment for
reasons related to Disability;

      "sickness" means any illness or disease that renders the Executive
incapable of performing material and substantial duties of his employment under
the Employment Agreement; and

      "injury" means a bodily injury that is the direct result of an accident
and not related to any other cause.BASELINE OIL & GAS CORP.
                             STOCK OPTION AGREEMENT
                                (At Market Price)

      This Stock Option Agreement (this "Agreement") is effective as of December
20, 2006 (the "Option Grant Date") by and between Baseline Oil & Gas Corp., a
Nevada corporation having its principal place of business at 20022 Creek Farm,
San Antonio, Texas 78259 (the "Company"), and Thomas Kaetzer, an individual
residing in the State of Texas (the "Optionee"). The Optionee and the Company
hereby agree as follows:

      1. Grant. The Company hereby grants to the Optionee an option (the
"Option") to purchase up to an aggregate of 1,000,000 shares (the "Optioned
Shares") of the Company's common stock, par value $0.001 per share (the "Common
Stock"), at an exercise price (the "Exercise Price") equal to the Market Price
(defined in Section 4(c) below) of the Common Stock at the Option Grant Date.

      2. Term. The Option granted hereby shall terminate no later than at the
close of business on December 20, 2011 (the "Termination Date").

      3. Exercisability; Termination of Employment.

            (a) Exercisability. Subject to Section 3(b) below, the Option shall
vest and may be exercised in whole or in part, as follows: (i) up to 333,333
Optioned Shares at any time from and after the Option Grant Date until the
Termination Date, (ii) up to an additional 333,333 Optioned Shares at any time
from and after the first anniversary date of the Option Grant Date until the
Termination Date, and (iii) up to the remaining 333,334 Optioned Shares at any
time from and after the second anniversary date of the Option Grant Date until
the Termination Date (each such Option Grant Date and anniversary date, a
"Vesting Date"); provided, that on each such Vesting Date, the Optionee shall
have been continuously employed by the Company through such date. To the extent
the Option has become vested and is exercisable, the Option may thereafter be
exercised by the Optionee, in whole or in part, at any time or from time to time
prior to the expiration of the Option as provided herein. Optioned Shares that
are available to be issued to the Optionee upon exercise pursuant to this
Section 3 are referred to herein as "Exercisable Shares."

            (b) Termination of Employment.

                  (1) If the Optionee's employment under his current employment
agreement with the Company ("Employment Agreement") is terminated by the Company
without Cause (as defined in the Employment Agreement) or by the Optionee
pursuant to the requirements for his voluntary resignation for Good Reason (as
defined in the Employment Agreement) prior to any Vesting Date, then Options
Shares that had not yet vested and become exercisable as of the employment
termination date shall immediately vest and become exercisable in an number that
is equal to (x) multiplied by (y), where (x) is the total number of Option
Shares that would have become exercisable on the next Vesting Date, and (y) is a
fraction, the numerator of which is the number of whole thirty-day periods the
Optionee was employed from the preceding Vesting Date through such termination
date and the denominator of which is twelve (12).

<PAGE>

                  (2) If the Optionee's employment with the Company is
terminated by the Company for Cause or by the Optionee other than pursuant to
the requirements for voluntary resignation for Good Reason, or for any other
reason (except as provided in Section 3(b)(1) above), then the unvested portion
of the Option shall be immediately forfeited and canceled, but any portion of
the Option that had vested prior thereto shall continue to be exercisable by the
Optionee pursuant to the terms hereof.

      4. Procedure for Exercise.

            (a) Notice. The Optionee may exercise the Option at any time with
respect to all or any part of the Exercisable Shares by giving the Secretary of
the Company written notice of intent to exercise. The notice of exercise shall
specify the number of Exercisable Shares as to which the Option is to be
exercised and the date of exercise thereof, which date shall be at least five
days after the giving of such notice unless an earlier time shall have been
mutually agreed upon.

            (b) Payment of Exercise Price. Full payment (in U.S. Dollars) by the
Optionee of the Exercise Price for the Exercisable Shares purchased shall be
made on or before the exercise date specified in the notice of exercise in cash,
or, with the prior written consent of the Board, in whole or in part through the
surrender of previously acquired shares of Common Stock (valued at their fair
market value on the exercise date). If the Optionee fails to pay for any of the
Exercisable Shares specified in such notice or fails to accept delivery thereof,
the Optionee's right to purchase such Exercisable Shares may be terminated by
the Company. The date specified in the Optionee's notice as the date of exercise
shall be deemed the date of exercise of the Option, provided that payment in
full for the Exercisable Shares to be purchased upon such exercise shall have
been received by such date.

            (c) Cashless Exercise. In addition to the method of payment set
forth above, provided that the Common Stock is either registered on a national
securities exchange or quoted on a national quotation system at the time of
exercise, Optionee shall have the right to exercise this Option in full or in
part by delivering written notice to the Company, and Optionee shall receive the
number of Exercisable Shares equal to the product of (x) the number of
Exercisable Shares as to which this Option is being exercised, multiplied by (y)
a fraction, the numerator of which is the Market Price (defined below) of the
Common Stock minus the Exercise Price of the Exercisable Shares and the
denominator of which is the Market Price of the Common Stock. As used in this
Agreement, the phrase "Market Price" for any given date shall be deemed to be
the last reported sale price on the trading day immediately preceding such date,
or, in case no such reported sale takes place on such day, the average of the
last reported sale prices for the last three (3) trading days immediately
preceding such date on which reported sales did take place, in either case as
officially reported by the OTC Bulletin Board or the principal securities
exchange on which the Common Stock is listed or admitted to trading if so listed
and admitted.

            (d) Other Limitations on Exercise. The obligation of the Company to
deliver shares of Common Stock upon the exercise hereof shall be subject to the
condition that if at any time the Company's Board of Directors shall determine
in its sole discretion that the listing, registration or qualification of the
Option or the Exercisable Shares upon any securities exchange or under any state

                                      -2-
<PAGE>

or federal law, or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition of, or in connection with, the grant of
this Option or the issuance or purchase of stock hereunder, then this Option may
not be exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Board of Directors.

      5. Adjustment of and Changes in Stock of Company. If the Company at any
time after the Option Grant Date subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Exercise Price in effect
immediately prior to such subdivision will be proportionately reduced and the
number of shares of Common Stock obtainable upon exercise of this Option will be
proportionately increased. If the Company at any time after the Option Grant
Date combines (by combination, reverse stock split or otherwise) one or more
classes of its outstanding shares of Common Stock into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination will
be proportionately increased and the number of Exercisable Shares issuable upon
exercise of this Option will be proportionately decreased. Any adjustment under
this Section 5 shall become effective at the close of business on the date the
subdivision or combination becomes effective.

      6. Non-Transferability of Option. During the Optionee's lifetime, this
Option shall be exercisable only by the Optionee or any guardian or legal
representative of the Optionee, and the Option shall not be transferable except,
in case of the death of the Optionee, by will or the laws of descent and
distribution, nor shall the Option be subject to attachment, execution or other
similar process. In the event of (a) any attempt by the Optionee to alienate,
assign, pledge, hypothecate or otherwise dispose of this Option, except as
provided for herein, or (b) the levy of any attachment, execution or similar
process upon the rights or interest hereby conferred, the Company may terminate
the Option by notice to the Optionee and it shall thereupon become null and
void.

      7. Restrictions on Underlying Stock. The shares of Common Stock issuable
upon exercise of this Option may not be sold, pledged, hypothecated, transferred
or assigned in the absence of an effective registration statement for the
securities under the applicable federal and state securities laws or an opinion
of counsel satisfactory to the Company to the effect that such registration is
not required thereunder.

      8. "Piggy-Back" Registration Rights. If at any time commencing on the
first anniversary of the date hereof and expiring five (5) years hereafter, the
Company proposes to register any of its securities under the Securities Act of
1933 (other than in connection with an initial public offering or in connection
with a Form S-8 or any successor form as may be adopted by the Securities and
Exchange Commission), then the Company shall afford the Optionee the opportunity
to include for sale in such registration statement, shares of Common Stock
acquired by the Optionee upon the exercise of this Option; provided, however,
that if the Company's underwriter shall advise the Company in writing that in
its opinion the number of shares to be included in such registration is too
large, then the Company will include only such number of Option Shares as such
underwriter shall so advise.

      9. Nonqualified Option. The Option granted hereby shall be treated as a
nonqualified stock option and not as an incentive stock option under the
Internal Revenue Code.

                                      -3-
<PAGE>

      10. No Rights as Stockholder. Neither the Optionee nor any personal
representatives shall be, or shall have any of the rights and privileges of, a
stockholder of the Company with respect to any shares of Common Stock
purchasable or issuable upon the exercise of this Option, in whole or in part,
prior to the date of exercise of this Option in accordance with the provisions
hereof, and then only to the extent of the shares of Common Stock so purchased
or issued.

      11. Successors and Assigns. This Option shall not be assignable by the
Optionee without the prior consent of the Company, which shall not be
unreasonably withheld. This Option shall be binding upon the successors and
assigns of the Company, and shall be expressly assumed by any successor to the
Company pursuant to a merger in which the Company is not the surviving entity.

      12. Miscellaneous. This Option and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This certificate is deemed to have been delivered in the State of New
York and shall be construed and enforced in accordance with and governed by the
laws of such State. The headings in this Stock Option Agreement are for purposes
of reference only, and shall not limit or otherwise affect any of the terms
hereof.

                                     * * * *

          [The signatures hereto are set forth on the following page.]

                                      -4-
<PAGE>

            IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by a duly authorized representative and the Optionee has hereunto set
his hand as of the Option Grant Date.

                                            BASELINE OIL & GAS CORP.

                                            By: /s/ Barrie M. Damson
                                                --------------------------------
                                                Name:  Barrie M. Damson
                                                Title: Chairman & CEO

                                            /s/ Thomas Kaetzer
                                            ------------------------------------
                                            Thomas Kaetzer

                                      -5-

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