South Texas Oil Hedges 263 bbl/d for 2008

South Texas Oil Company its initial 2008 risk management activities. Hedged production volumes are currently 8,000 barrels of oil per month (approximately 263 barrels of oil per day), or roughly 33% of the Company's current net production. The Company has hedged these volumes for calendar year 2008 by using costless collar contracts with a WTI floor price of $85 per barrel and a ceiling of $100 per barrel. The risk management transactions, which are intended to deliver predictable cash flow for 2008, still provide potential exposure to higher commodity prices for the remaining 66% of unhedged volumes.

The counterparty to the hedge position is MF Global Ltd., the leading broker of exchange-listed futures and options in the world. It provides execution and clearing services for exchange-traded and over-the-counter derivative products as well as for non-derivative foreign exchange products and securities in the cash market. MF Global is rated A3/BBB+/BBB+ by Moody's, S&P and Fitch, respectively.


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