South Texas Oil Co. Reports on 2008 Financial, Operating Results

South Texas Oil Company has announced year-end 2008 financial and operating results.

Highlights:

  • 2008 Oil & Gas Sales: $9.3 million, an increase of 73% over 2007
  • 2008 Production: 102,700 barrels of oil equivalent (Boe)

Full-Year 2008 Results

The Company reported oil and gas sales for 2008 of $9.3 million, versus $5.4 million in 2007, an increase of 73% over 2007. Total revenues were $9.3 million, as compared to $5.7 million in the year-ago period, an increase of 63%. The Company reported a net loss for the year ended December 31, 2008 of $19.7 million, or $1.23 per share, compared with a net loss of $6.6 million, or $0.45 per share, for the same period in 2007. South Texas Oil attributes the larger net loss in 2008 primarily to realized derivatives losses of $4.8 million, as compared to no realized derivatives losses in 2007; to greater interest expense of $4.2 million, versus $1.0 million in 2007; and to higher general and administrative expense (G&A) of $7.9 million in 2008, as compared to $2.1 million in 2007. Included in the G&A expense for 2008 is $3.3 million of non-cash, stock-based compensation expense related to the installation of and compensation packages for the new management team that occurred in the third quarter of 2008. Also included in the 2008 G&A expense line item were increased payroll expense of $0.9 million and consulting fees of $1.2 million.

Included in the 2008 costs and expenses was approximately $4.4 million in depreciation, depletion and amortization (DD&A), as compared to $4.9 million in 2007. The decrease in DD&A is attributed to lower production volumes and to acquisitions during the 2008 fiscal year. For the full-year 2008, net cash used in operations was $1.7 million, as compared to cash flow from operations of $1.5 million in 2007.

Total assets were $67.9 million at year-end 2008, up from $63.4 million in the same period in 2007. Stockholders' equity decreased to $13.0 million at December 31, 2008 from $31.2 million at year-end 2007. The Company's cash position at year-end 2008 was $4.2 million.

The Company recently announced a comprehensive debt restructuring plan and non-core asset disposition subsequent to the end of the fourth quarter 2008. Upon the effectiveness of existing stockholder consents approving the debt restructure transaction, which will occur 21 days after the Company's mailing of a definitive Information Statement to all stockholders, its senior secured debt is expected to be approximately $16.0 million.

Production and Operations

For the full-year 2008, South Texas Oil produced 102,700 Boe comprised of 77,100 barrels of crude oil and 153.9 million cubic feet of natural gas (MMcf). This compares to 121,100 barrels of oil and 292 MMcf of natural gas, or 169,700 Boe in 2007. Average oil price realizations for 2008 were $99.61 per barrel, as compared to $35.99 per barrel in 2007. Average natural gas price realizations for 2008 were $10.32 per thousand cubic feet of natural gas (Mcf), as compared to $3.40 per Mcf in 2007. South Texas Oil's 2008 production base by commodity was approximately 75% crude oil.

During 2008, South Texas Oil's total capital expenditure investment for development and exploration of its leasehold was $9.5 million. By comparison, South Texas Oil has allocated $10.0 million for its estimated 2009 capital expenditure budget.

Fourth Quarter 2008 Results

The Company reported oil and gas sales for the fourth quarter of 2008 of $1.4 million, versus $2.9 million in the same period in 2007. Total revenues for the fourth quarter 2008 were $1.4 million, as compared to $2.3 million in the year-ago period. The Company reported a net loss for the fourth quarter of 2008 of $5.6 million, as compared to a net loss of $4.8 million for the same period in 2007. South Texas Oil attributes the larger net loss in the fourth quarter 2008 primarily to realized derivatives losses of $0.5 million, as compared to no realized derivatives losses in 2007; to greater interest expense of $1.5 million, versus $0.8 million in 2007; and to higher G&A expense of $2.3 million in the fourth quarter of 2008, as compared to $1.3 million in the same period in 2007.

Included in the fourth quarter 2008 costs and expenses was approximately $1.2 million in DD&A, as compared to $4.1 million in the same period in 2007. The decrease in DD&A is attributed to lower production volumes. For the fourth quarter of 2008, net cash used in operations was $0.8 million, as compared to cash flow from operations of $1.7 million in the same period in 2007.
Management Comment

Commenting on the 2008 results, Mike Pawelek, Chairman and CEO said, "Our management team has worked together since June 2008 to best position the Company for growth opportunities that are not reflected in the 2008 results reported today. The net loss includes $3.3 million in non-cash charges related to stock-based compensation which we use to attract and retain top-quality talent that has proven track record of finding oil and gas in our core operating areas and elsewhere. Additionally, an out-of-the-money derivative position that we inherited caused us to record a realized hedging loss of in 2008 of $4.8 million, a non-recurring event. In evaluating our assets, we were able to increase reserves, dispose of non-core assets while restructuring our debt with our lender, and identify organic opportunities for future growth. We enter 2009 as the first full year where our team can work together to build shareholder value through organic opportunities. We invite our shareholders to track our progress as we look to exploit and explore our quality asset base and high-potential joint venture opportunities."
 

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