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South Texas Oil Company
Management Presentation
IPAA OGIS – New York
April 20-22, 2009
Michael J. Pawelek
Chairman & CEO
Forward-Looking Statements
This communication may contain “forward-looking statements” within the meaning of the federal securities laws, including statements regarding planned capital expenditures (including the amount and nature thereof), estimates of future production, the number of wells we anticipate drilling in 2009 and beyond, availability and costs of drilling rigs and other oil field services, the number and nature of potential drilling locations, our growth strategies, anticipated trends in our business, our future results of operations, estimates regarding future net revenues from oil and natural gas reserves and the present value thereof, estimates, plans and projections relating to acquired properties, quality and nature of our asset base, our ability to successfully and economically explore for and develop oil and gas resources, market conditions in the oil and gas industry, the assumptions upon which estimates are based and other expectations, beliefs, plans, objectives, models, strategies, assumptions or statements about future events or performance often, but not always, using such words as “expects,” “anticipates,” “plans,” “estimates,” “seeks,” “believes,” “hopes,” “predicts,” “envisions,” “intends,” “potential,” “possible,” “probable,” “opportunities,” “confident,” or stating that certain actions “may,” “will,” “should,” or “could,” be taken, occur or be achieved ("forward-looking qualifiers"). Statements concerning oil and gas reserves also may be deemed to be forward-looking statements in that they reflect estimates based on certain assumptions that the resources involved can be economically exploited and other assumptions.
All forward-looking statements contained in this communication (whether or not accompanied by a forward looking qualifier) are based on current expectations, plans, estimates and projections that involve a number of risks and certainties, which could cause actual results to differ materially from those reflected in the statements. These risks include, but are not limited to, the risks of the oil and gas industry (for example, operational risks in exploring for, developing and producing crude oil and natural gas; risks and uncertainties involving geology of oil and gas deposits; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to future production, costs and expenses; potential delays or changes in plans with respect to exploration, development projects or capital expenditures; and health, safety and environmental risks); uncertainties as to the availability and cost of financing; fluctuations in oil and gas prices; risks related to our hedging program; inability to realize expected value from acquisitions; inability of our management team to execute its plans to meet its goals; loss of services of our management team; inability to replace oil and gas reserves; shortage of drilling equipment, oil field personnel and services; and unavailability of gathering systems, pipelines and processing facilities. All forward-looking statements contained in this communication (whether or not accompanied by a forward-looking qualifier) are based on the estimates, opinions and beliefs of our management at the time the statements are made and should be considered approximations unless specifically indicated otherwise. We assume no obligation to update forward-looking statements should circumstances or our management’s estimates or opinions change. Unless the context otherwise indicates, when we refer to “South Texas,” the “Company,” “us,” “we,” “our,” “ STXX” or “ours” in this presentation, we are describing South Texas Oil Company, together with its subsidiaries.
The SEC generally permits oil and gas companies to disclose in their filings with the SEC only proved reserves, which are reserve estimates that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. In this presentation, South Texas uses the term “resource potential” which could be equated with “probable” and “possible” reserves. SEC guidelines prohibit probable and possible reserves from being included in filings with the SEC. Probable reserves are unproved reserves which are more likely than not to be recoverable. Possible reserves are unproved reserves which are less likely to be recoverable than probable reserves. Resource potential includes both types of reserves. Estimates of probable and possible reserves which may potentially be recoverable through additional drilling or recovery techniques are by their nature much more uncertain than estimates of proved reserves and accordingly are subject to substantially greater risk of not actually being realized by the Company. In addition, our production forecasts and expectations for future periods are dependant upon many assumptions, including estimates of production decline rates from existing wells and the undertaking and outcome of future drilling activity, which may be affected by significant commodity price declines or drilling costs increases.
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Company Overview
San Antonio-based South Texas Oil Company (NASDAQ: STXX) is an independent
energy company engaged in the acquisition, production, exploration and
development of crude oil and natural gas. Our core operating areas include Texas,
Louisiana and the Gulf Coast.
South Texas Oil controls a large inventory of lower-risk developmental / exploitation
locations and higher-risk, high-reward exploration prospects. The Company
leverages its geological and geophysical strengths by acquiring high-quality,
operated properties and further enhances an asset's value through field-level cost
reduction. It continually evaluates producing property acquisition opportunities
complementary to its core operating areas.
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Company Profile
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Giddings
CO
Matagorda
Bay
All data as of 12/31/08, except share data
Corporate Strategy
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Develop Our Existing Properties
Core Areas: South Texas (Giddings, Bastrop and Big Foot Fields), and Matagorda Bay
Create reserve and production growth from our identified drilling locations
~27,000 net acres controlled
Divest non-core assets
Maximize Operational Control
Operate 100% of assets except DJ Basin
Maintain substantial working interest
Pursue Selective Acquisitions and Joint Ventures
Blue Moon JV
Reduce Costs Through Economies of Scale and Efficient Operations
Recent Developments
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2008 Total Proved Reserves of 5.1 MMBoe, up from 0.581 MMBoe in 2007
Restructured $26.1MM in Debt
2009 Cap-Ex Budget of $10.0MM
New Management Team June 2008
2008 Proved Reserves
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As of December 31, 2008, Total Proved Reserves of 5.1 MMBoe
3.1 million barrels of oil and 12.1 billion cubic feet of natural gas
Reserve mix is approximately 60% crude oil
12% proved developed and 88% PUD
SEC PV-10 Value of $70.3MM*, up from $18.3MM in 2007
Reserves are Engineered by Forrest A. Garb & Associates, Inc.
*Reconciliation of PV-10 to standardized measure of cash flows is available in the Company’s annual filing on Form 10-K
Debt Restructuring
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Restructured $26.1MM of Debt with Convertible Preferred Stock and Debt/Asset
Exchange
Converted $16.3MM of Debt into Convertible Preferred stock
Perpetual preferred, no coupon or dividend, non-voting
Extinguished $9.8MM of Debt via Sale of DJ Basin Property and U34 Drilling
Rig
Non-core assets
Company-focus entirely on Giddings Field, Matagorda Bay and Blue Moon prospects
Subject to Customary Closing Considerations
2009 Capital Expenditure Budget
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Board-approved 2009
CAPEX Budget of $10.0MM
Giddings Field
27 lateral development wells
for recompletion / re-entries
potential
Blue Moon Exploration JV
Varied-risk projects focusing
on Texas, Louisiana and GOM
Matagorda Bay
Completion activity
2009 Preliminary CAPEX* ($MM)
*The preliminary 2009 CAPEX budget excludes
acquisitions, but may include installation of gathering
system infrastructure and pipeline hookups, and
geophysical operations, including seismic data
acquisition. The CAPEX budget may be modified
depending upon commodity prices and market conditions.
Giddings Field Overview
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Identified 27 new laterals and
low-cost re-entries to drill
Conventional redevelopment,
high IP rates with steep decline
47 producing wells
Net production 205 BOEPD
Acreage Leasehold
16,655 gross
14,142 net
100% Operated, ~80% WI
2009 CAPEX of $5.5MM
Giddings Field Geology
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Target Formations (6,000’ – 12,000’):
Austin Chalk Limestone
Buda Limestone
Georgetown Limestone
Wilcox uphole potential
Naturally fractured, carbonate
Well log and seismic data indicate high
permeability fracture systems strike in an
NE-SW direction which are separated by
lower permeability Limestone
Horizontal drilling allows multiple fracture
zones, which are not connected, to be
developed by a single well
Giddings Field has historically produced over
1.5 Billion BOE
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Shallow oil play located in Frio
and Atascosa Counties
Target Olmos B and Olmos D
formations (3,100’ – 3,600’)
73 wells cumulatively producing
30 BOPD
100% working interest in 4,050
net acres
Recently completed 2 re-fracs
20 additional wells identified for
workovers
Existing wells drilled on 20 acre
spacing, potential down spacing
Big Foot Field Overview
Blue Moon Exploration JV
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Project Agreement announced in December 2008
Identify, lease and develop oil and gas prospects in Texas, Louisiana and the Gulf
of Mexico
Exclusive rights to first-look at all prospects
Option to operate with a minimum 25% WI
Access to all geological, geochemical, geophysical, seismographic and petroleum
engineering data which includes over 4,000 square miles of 3D seismic data and
3,500 miles of 2D seismic data
2009 CAPEX of $4.0MM
Matagorda Bay Overview
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Shallow Texas state waters in Calhoun
County, drilled with a barge rig
STXX operates, WI ranges from 20% - 40%
Acreage leasehold 2,240 gross / 652 net
Target Formations (8,500’ – 12,500’):
Bolmex
Melbourne
Nodosaria
4 exploratory prospects identified from a
120 square mile 3D survey
Drilled 127-1 and 150-1 wells
2009 CAPEX of $0.5MM
Source: Texas RRC
Matagorda Bay Wells
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Well 127-1
Commenced drilling in July 2008, reached TMD of 12,464
feet in August 2008
Successfully cased and cemented, no hurricane damage
Diagnostic well log analysis indicated multiple gas and
condensate pay zones
Completion operations underway in Nodosaria Formation
1-mile gas sales line permitted
STXX operates with ~20.5% WI
Well 150-1
Commenced drilling in November 2008, reached TMD of
10,260 feet in December 2008
Captured up-dip proved reserves in Bolmex Formation
Completion operations underway
STXX operates with ~37.5% WI
DJ Basin Overview
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Located in Logan County,
northeastern Colorado
37.5% working interest, non-
operated
Current net production is 15
BOEPD from 4 producing wells
Geological evaluation completed
Acreage Leasehold
23,111 gross
8,666 net
Predominantly contiguous
CO
Denver
Julesburg
Basin
Source: COGCC
DJ
Basin
NE
CO
WY
Logan
Target Formations: D & J Sands
Management
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Michael J. Pawelek, Chairman, President & CEO
27 years of experience in the oil and gas industry
Previous firms: Clayton Williams, TXO, Universal Seismic, Boss Exploration, Sonterra Resources
Geophysicist, BS degree in Engineering from Texas A&M University
Wayne A. Psencik, EVP Chief Operating Officer
22 years of experience in oil and gas operations
Previous firms: Chesapeake, El Paso, Coastal Oil & Gas, Boss Exploration, Sonterra Resources
BS degree in Petroleum Engineering from Texas A&M University
Sherry L. Spurlock, EVP Chief Financial Officer
25 years of experience in oil and gas financial management
Previous firms: Deloitte, Brigham Exploration, United Oil & Minerals, Boss Exploration, Sonterra Resources
CPA, BBA degree in Accounting from Stephen F. Austin State University
Theodore J. Wicks, EVP Corporate Development
15 years of experience in energy investment banking, accounting and finance
Previous firms: Petro Capital Group, First Albany Capital, SMH Capital, KeyBanc, RBC Capital Markets
MBA in Finance, BA degree in Accounting and Finance, both from University of St. Thomas
Robert W. Kuehner, VP Land
38 years of experience in Land Management
Previous firms: Union Oil Co of California, Hilliard Oil & Gas, Suburban Propane, Clayton Williams, Bob Kuehner & Co
BBA degree, Petroleum Land Management from University of Texas, AAPL Member since 1970
Board of Directors
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Michael J. Pawelek, Chairman, President & CEO
27 years of experience in the oil and gas industry
Previous firms: Clayton Williams, TXO, Universal Seismic, Boss Exploration, Sonterra Resources
Geophysicist, BS degree in Engineering from Texas A&M University
Bryce W. Rhodes
Former President and CEO of Whittier Energy Corp (2003-2007). Joined Whittier in 1985
30 years of experience in the oil and gas industry
Doyle A. Valdez
President of Valco Resource Management Inc., an oil and gas production marketing firm since 1987
26 years of experience in the oil and gas industry
Previous firms: United Resources, EnerPro Inc.
Former President of the Austin Independent School District Board of Trustees
Stanley A. Hirschman
President of CPointe Associates, Inc. since 1997
Previous firms: Software Etc., T.J. Maxx, Gap Stores, Banana Republic
Member of National Association of Corporate Directors and KPMG Audit Committee Institute
David M. Lieberman
40 years of experience in financial and operations management. Extensive CFO experience. CPA
Previous firms: Price Waterhouse, Dalrada Financial, John Goyak & Assoc, JLS Services
Investment Highlights
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Proven Record in Creating and Implementing Development Projects
Experienced Management Team and Technical Staff
Restructuring Successfully Underway, Strengthened Balance Sheet
Diverse Asset Base with High Level of Operating Control
Large Inventory of Lower Risk Development Opportunities
Significant Exploration Upside
