First Quarter 2009 Results

Total revenues for both reporting periods consisted entirely of oil and gas sales. South Texas Oil mainly attributes the quarter-over-quarter refuse in total revenues to a 39% decrease in equivalent volumes produced and to a 52% lower price received for the sales of its crude oil volumes.

South Texas Oil said that first quarter 2009 included costs and expenses, general and administrative (G&A) expense of $2.7 million, as compared to $1.2 million in the year-ago quarter. G&A expense for the first quarter 2009 comprises $1.7 million in non-cash, stock-based compensation expense, as compared to $230,000 in the year-ago quarter.

Also included in the first quarter 2009 costs and expenses was about $663,000 in depreciation, depletion and amortization (DD&A), as compared to $1.1 million in same period in the year-ago quarter. The 39% decline in DD&A expense is mainly attributed to the 39% decrease in production volumes, as compared to the previous-year period. The first quarter 2008 results comprised derivative losses of about $1.1 million attributed to derivative accounting effect.

South Texas Oil has not entered into derivative contracts during 2009. Interest expense for the first quarter 2009 rose to $1.4 million, as compared to $437,000 in the year-ago quarter. The company attributes the higher interest expense to an increase in debt outstanding under the company’s credit facilities, combined with an increased interest rate paid on its notes facility.

For the first quarter 2009, net cash used in operations was $851,000, as compared to net cash provided by operations in the year-ago period of $1 million. At March 31, 2009, the company’s total assets were $63.6 million, as compared to $67.9 million at December 31, 2008. The company had cash and equivalents at March 31, 2009 of $2.5 million. Please see the discussion below for further information on the company’s liquidity and capital resources.

Production and Operations

For the first quarter 2009, the company has produced 19,222 barrels of oil equivalent (Boe), comprised of 13,445 barrels of crude oil and 34.7 million cubic feet of natural gas (MMcf). This compares to 23,941 barrels of oil and 46.5 MMcf of natural gas, or 31,687 Boe in the year-ago quarter. Average oil price realizations for the first quarter 2009 were down 52% quarter-over-quarter to $33.02 per barrel, as compared to $68.45 per barrel in the year-ago quarter.

Average natural gas price realizations for the first quarter 2009 were $4.87 per thousand cubic feet of natural gas (Mcf), as compared to $5.14 per Mcf in the year-ago quarter, a marginal decline of 5%. The company’s first quarter 2009 production base by commodity was about 70% crude oil.

During the first quarter of 2009, South Texas Oil’s total capital expenditure investment for development and exploration of its leasehold was about $718,000.