SOUTH TEXAS OIL COMPANY
2802 Flintrock Trace, Suite 252
Austin, TX 78738
Telephone: (512) 371-4152
Facsimile: (512) 263-5046
April 18, 2007
Securities and Exchange Commission
Kevin Stertzel, Division of Corporation Finance
Mail Stop 7010
100 F Street, N.E.
Washington, D.C. 20549
Re: SOUTH TEXAS OIL COMPANY
COMMENT LETTER DATED MARCH 6, 2007
FORM 10-K
FILE NO. 0-50732
FILED ON MARCH 31, 2006
Dear Mr. Stertzel:
The following are South Texas Oil Company's responses to the comments sent
under cover of your March 6, 2007 letter sent to my attention. An amendment on
Form 10-KSB/A for the year ended December 31, 2005 was filed on April 17, 2007.
Form 10-KSB for the Fiscal Year Ended December 31, 2005
General
1. Please submit your response letter dated February 8, 2007 and your draft
Form 10-KSB amendment to your EDGAR correspondence folder.
Response: Form 10-KSB/A was submitted on April 17, 2007.
Note 2 - Summary of Significant Accounting Policies
Fixed Assets, page F-8
2. We note your response to our prior comment number two. It appears from
your response letters and the draft amendment provided as part of your
response, that you intend to amend your document. As such, please
modify your document to incorporate all changes including those
pertaining to your oil and gas assets and related note disclosures.
Response: Form 10-KSB/A, filed on April 17, 2007, was modified to
incorporate all changes including those pertaining to the oil and gas
assets and related note disclosures.
3. We have reviewed your response to prior comment number three and are
unable to agree with you conclusion. As noted in paragraph 3 of SFAS
143 you are required to recognize a liability for the fair value of your
asset retirement obligations when it is incurred. This requires
recording a liability and an increase in the cost of the related asset.
We issue our prior comment in its entirety.
Response: Form 10-KSB/A, filed on April 17, 2007, was modified to recognize
the asset retirement obligations.
Standardized Measure of Discounted Future Net Cash Flows and Changes Therein
Relating to Proved Oil and Gas Reserves, page F-19
4. We note your response to our prior comment number six. It appears your
3.5% rate used in your impairment analysis incorporates only the risk of
inflation. Please tell us why you believe this rate is representative
of your risk profile and your cost of capital. Please refer to
paragraph 23 of SFAS 144.
Response: The Company has revised the impairment analysis utilizing a 10%
rate to account for the risk of inflation as well as our estimated cost of
capital. The net present value obtained is still much greater than the book
value currently reported on the financial statements.
Engineering Commments
Financial Statements
Note 4 - Reserves Quantity Information
Proved Developed and Undeveloped Reserves, Page F-19
5. In comment seven of our letter dated September 14, 2006, we asked that
you incorporate year-end prices and costs in your 2005 estimated proved
reserves and associated standardized measure. Your draft amended 2005
Form 10-KSB shows none of these requested changes. We reissue our prior
comment seven.
Response: Form 10-KSB/A, filed on April 17, 2007, was modified to
incorporate the requested information based on new reserve studies performed
by independent petroleum engineers which factored in the requested
information.
6. We note your February 5, 2007 announcement that you have received a $15
million credit facility as well as your January 31, 2007 announcement
concerning your drilling of a third (Colorado) DJ basin well. Your
response to our prior comment number eight indicates you will initiate
drilling upon your booked proved undeveloped reserves in Texas "during
the next 12 months." Even though the development capital is available
and these PUD volumes have been booked since year-end 2002, you have not
drilled any of these locations. This additional delay in the
monetization of these volumes lends doubt as to the viability of these
reserves and precludes their classification as proved. Please amend
your document to remove these claimed proved undeveloped reserves.
Response: The Company obtained a new reserve study which has removed the
$3.1 million of development costs which were previously factored into our
reserve estimates. The removal of this should alleviate any concern that we
are overly optimistic about the value of the reserves.
Sincerely,
/s/ Murray N. Conradie
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Murray N. Conradie
Chairman/CEO