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STXX .67 a share as of June 12 - Target Price .86 By Sept. 2009
South Texas Oil Company (South Texas) is an independent oil and natural gas company engaged in the acquisition, production, exploration and development of oil and natural gas. As of December 31, 2008, the Company controlled approximately 46,502 gross (27,532 net) acres and operated approximately 124 producing well bores located throughout 14 counties and/or parishes in Texas, Louisiana, Colorado and the Gulf Coast. The acreage operated and controlled by South Texas includes Atascosa, Bastrop, Brazos, Burleson, Calhoun, Fayette, Frio, Gonzales, Lee and Matagorda Counties in Texas; Assumption, Lafourche and Terrebonne Parishes in Louisiana, and Logan County, Colorado. As of December 31, 2008, its daily net production was approximately 250 barrels of oil equivalent (Boe), of which approximately 70% is oil. Its business activities are primarily conducted through its wholly owned subsidiaries, Southern Texas Oil Company, STO Drilling Company, STO Operating Company and STO Properties LLC.The Company’s properties are located in the United States. Its properties include Giddings Field, which is located in south central Texas, and includes the Bastrop, Brazos, Burleson, Fayette, Gonzales, and Lee Counties, Texas; Big Foot Field, which is located in south central Texas, and includes the Atascosa and Frio Counties, Texas; DJ Basin, which is located in Logan County, Colorado; Gulf Coast, which includes the Company’s Matagorda Bay wells in the shallow state waters of Matagorda and Calhoun Counties, Texas, and Louisiana, which includes projects with Blue Moon Exploration in Assumption, Lafourche and Terrebonne Parishes, Louisiana.
Giddings Field
As of December 31, 2008, South Texas controlled approximately 16,655 gross (14,142 net) acres, which included 47 producing well bores with net production of approximately 212 barrels of oil equivalent per day (Boe/d) in the Giddings Field. Its Giddings Field is 100% operated, and the Company holds an approximate 86% working interest. The majority of its proved reserves are located in the Giddings Field. As of December 31, 2008, the Company had identified 27 horizontal wells to drill from existing wellbores or offset locations that it has leased. It also possesses approximately 70 linear miles of two-dimensional (2D) seismic data.
The Company’s acreage position in the Giddings Field covers the Bastrop, Brazos, Burleson, Fayette and Lee Counties, Texas. Its acreage leasehold primarily covers the updip, shallow side of the Giddings Field, which is an oil-prone area. The primary target formations of the 27 identified horizontal wells are the Austin Chalk, Buda, Georgetown, Eagleford and Wilcox. The primary producing reservoir is the Austin Chalk (upper cretaceous), with secondary production from the Taylor (upper cretaceous) and deeper Buda and Georgetown Formations (lower cretaceous).
Big Foot Field
South Texas’ Big Foot Field is located in Frio and Atascosa Counties, Texas. The primary producing formations are the Olmos B and Olmos D sands, which range in depth from 3,100 feet to 3,600 feet. The Company has 73 wells cumulatively producing approximately 30 barrels of oil net per day (Bopd), with a 100% working interest in 4,050 acres. South Texas Oil has completed two re-fracs in two separate wells, which previously were completed and producing. These wells were marginal producers pumping from 0.25 to 0.5 Bopd each. After fracture stimulation, one of the wells is pumping at a stabilized rate of approximately seven Bopd, up from 0.5 Bopd. In addition to its workover activity, most of the Company’s existing wells in the Big Foot Field were drilled on 20-acre spacing, providing it with at least 40 additional infill drilling locations based on 10-acre well density.
DJ Basin
As of December 31, 2008, South Texas controlled approximately 23,111 gross (8,666 net) predominantly contiguous acres in the DJ Basin in Logan County, Colorado, in which it has approximately a non-operated, 37.5% net working interest. As of December 31, 2008, net production was approximately 18 Boe/d from four producing wells, or 7% of its daily production. The Company has entered into a definitive asset purchase and sale agreement with The Longview Fund L.P (Longview) to divest its Colorado DJ Basin property.
Gulf Coast
The Company controls 2,240 gross (652 net) acres in shallow Texas state waters in Matagorda Bay, in which it has identified four exploratory prospects from a 120-square-mile, three-dimensional (3D) seismic survey. As of June 2008, the Company agreed to contract operate the Matagorda Bay properties on behalf of Sonterra Resources, Inc., and it operates the Matagorda Bay wells and holds a working interest of approximately 20.5% and 37.5% on well #127-1 and well #150-1ST1, respectively. As of December 31, 2008, the Company drilled, cased and cemented two directional wells in Matagorda Bay, which are undergoing completion procedures. These wells were drilled with a barge rig in shallow Texas state waters (10 to 15-feet water depth) in Calhoun County, Texas. Target formations in the Frio sands are the Bolmex, Melbourne and Nodosaria, which range from 8,500 feet to 12,500 feet. Total measured depth (TMD) for well #127-1 reached 12,464 feet in August 2008, and for well #150-1STI reached 10,260 feet in November 2008. Well #127-1 was a new exploratory drill and well #150-1ST1 was a side-track, re-entry development well. Diagnostic well log analysis indicates multiple natural gas and condensate pay zones.
Louisiana
The Company has leasehold acreage and is pursuing leases in Assumption, Lafourche and Terrebone Parishes, Louisiana. As part of its joint venture project agreement with Blue Moon Exploration, the Company is focused on expanding its operations and developing oil and natural gas prospects throughout Louisiana. These prospects primarily target the Miocene formations. As of December 31, 2008, it leased 446 gross (22 net) acres in Lafourche Parish.For a long time, value investors have used the current share price relative to sales per share levels as an important valuation tool. We utilize a historical weighted average methodology that treats recent years more importantly in the calculation. When looking at STXX through this framework, we can see that our weighted average historical high and low Price to Sales per share ratios over the last 5 years are 64.28x and 7.60x respectively.
Utilizing this range we can see that STXX’s current Price to Sales per share ratio of 1.40x is significantly below its average levels historically. In fact, with a current price of $0.67, STXX is a full 97% below its average Price to Sales ratio at comparable sales levels. This is a rare occurrence and, when taken in context of the other areas of our analysis, can be a strong positive for our outlook for STXX.
STXX Cash Earnings
Price to Cash Earnings analysis is inappropriate for this company due to an insufficient positive cash earnings history. Rather than calculating a potentially misleading Price to Cash Earnings analysis, we have chosen to give STXX a neutral Price to Cash Earnings outlook at this time. However, we should point out that this metric is a significant element in Ockham’s methodology to analyzing the outlook for any company. Therefore, for STXX, our assessment is now more dependent on the Price to Sales analysis, and investors should be cautious with a company with very limited, if any, positive cash earnings.
STXX Dividends
A strong dividend payment history is looked upon as a favorable characteristic on a company’s future and potentially can receive a positive Ockham rating. That being said, we don't require dividend payments for company's whose management has elected to forgo them entirely. While we do like to see companies with healthy and growing dividends, it is not appropriate for all companies, especially those focused on growth. In this regard, we regard STXX as neutral because we do not have historical data for this company's dividends. We will being incorporating this into our analysis as soon as that data is available.
South Texas Oil Company (South Texas) is an independent oil and natural gas company engaged in the acquisition, production, exploration and development of oil and natural gas. As of December 31, 2008, the Company controlled approximately 46,502 gross (27,532 net) acres and operated approximately 124 producing well bores located throughout 14 counties and/or parishes in Texas, Louisiana, Colorado and the Gulf Coast. The acreage operated and controlled by South Texas includes Atascosa, Bastrop, Brazos, Burleson, Calhoun, Fayette, Frio, Gonzales, Lee and Matagorda Counties in Texas; Assumption, Lafourche and Terrebonne Parishes in Louisiana, and Logan County, Colorado. As of December 31, 2008, its daily net production was approximately 250 barrels of oil equivalent (Boe), of which approximately 70% is oil. Its business activities are primarily conducted through its wholly owned subsidiaries, Southern Texas Oil Company, STO Drilling Company, STO Operating Company and STO Properties LLC.The Company’s properties are located in the United States. Its properties include Giddings Field, which is located in south central Texas, and includes the Bastrop, Brazos, Burleson, Fayette, Gonzales, and Lee Counties, Texas; Big Foot Field, which is located in south central Texas, and includes the Atascosa and Frio Counties, Texas; DJ Basin, which is located in Logan County, Colorado; Gulf Coast, which includes the Company’s Matagorda Bay wells in the shallow state waters of Matagorda and Calhoun Counties, Texas, and Louisiana, which includes projects with Blue Moon Exploration in Assumption, Lafourche and Terrebonne Parishes, Louisiana.
Giddings Field
As of December 31, 2008, South Texas controlled approximately 16,655 gross (14,142 net) acres, which included 47 producing well bores with net production of approximately 212 barrels of oil equivalent per day (Boe/d) in the Giddings Field. Its Giddings Field is 100% operated, and the Company holds an approximate 86% working interest. The majority of its proved reserves are located in the Giddings Field. As of December 31, 2008, the Company had identified 27 horizontal wells to drill from existing wellbores or offset locations that it has leased. It also possesses approximately 70 linear miles of two-dimensional (2D) seismic data.
The Company’s acreage position in the Giddings Field covers the Bastrop, Brazos, Burleson, Fayette and Lee Counties, Texas. Its acreage leasehold primarily covers the updip, shallow side of the Giddings Field, which is an oil-prone area. The primary target formations of the 27 identified horizontal wells are the Austin Chalk, Buda, Georgetown, Eagleford and Wilcox. The primary producing reservoir is the Austin Chalk (upper cretaceous), with secondary production from the Taylor (upper cretaceous) and deeper Buda and Georgetown Formations (lower cretaceous).
Big Foot Field
South Texas’ Big Foot Field is located in Frio and Atascosa Counties, Texas. The primary producing formations are the Olmos B and Olmos D sands, which range in depth from 3,100 feet to 3,600 feet. The Company has 73 wells cumulatively producing approximately 30 barrels of oil net per day (Bopd), with a 100% working interest in 4,050 acres. South Texas Oil has completed two re-fracs in two separate wells, which previously were completed and producing. These wells were marginal producers pumping from 0.25 to 0.5 Bopd each. After fracture stimulation, one of the wells is pumping at a stabilized rate of approximately seven Bopd, up from 0.5 Bopd. In addition to its workover activity, most of the Company’s existing wells in the Big Foot Field were drilled on 20-acre spacing, providing it with at least 40 additional infill drilling locations based on 10-acre well density.
DJ Basin
As of December 31, 2008, South Texas controlled approximately 23,111 gross (8,666 net) predominantly contiguous acres in the DJ Basin in Logan County, Colorado, in which it has approximately a non-operated, 37.5% net working interest. As of December 31, 2008, net production was approximately 18 Boe/d from four producing wells, or 7% of its daily production. The Company has entered into a definitive asset purchase and sale agreement with The Longview Fund L.P (Longview) to divest its Colorado DJ Basin property.
Gulf Coast
The Company controls 2,240 gross (652 net) acres in shallow Texas state waters in Matagorda Bay, in which it has identified four exploratory prospects from a 120-square-mile, three-dimensional (3D) seismic survey. As of June 2008, the Company agreed to contract operate the Matagorda Bay properties on behalf of Sonterra Resources, Inc., and it operates the Matagorda Bay wells and holds a working interest of approximately 20.5% and 37.5% on well #127-1 and well #150-1ST1, respectively. As of December 31, 2008, the Company drilled, cased and cemented two directional wells in Matagorda Bay, which are undergoing completion procedures. These wells were drilled with a barge rig in shallow Texas state waters (10 to 15-feet water depth) in Calhoun County, Texas. Target formations in the Frio sands are the Bolmex, Melbourne and Nodosaria, which range from 8,500 feet to 12,500 feet. Total measured depth (TMD) for well #127-1 reached 12,464 feet in August 2008, and for well #150-1STI reached 10,260 feet in November 2008. Well #127-1 was a new exploratory drill and well #150-1ST1 was a side-track, re-entry development well. Diagnostic well log analysis indicates multiple natural gas and condensate pay zones.
Louisiana
The Company has leasehold acreage and is pursuing leases in Assumption, Lafourche and Terrebone Parishes, Louisiana. As part of its joint venture project agreement with Blue Moon Exploration, the Company is focused on expanding its operations and developing oil and natural gas prospects throughout Louisiana. These prospects primarily target the Miocene formations. As of December 31, 2008, it leased 446 gross (22 net) acres in Lafourche Parish.For a long time, value investors have used the current share price relative to sales per share levels as an important valuation tool. We utilize a historical weighted average methodology that treats recent years more importantly in the calculation. When looking at STXX through this framework, we can see that our weighted average historical high and low Price to Sales per share ratios over the last 5 years are 64.28x and 7.60x respectively.
Utilizing this range we can see that STXX’s current Price to Sales per share ratio of 1.40x is significantly below its average levels historically. In fact, with a current price of $0.67, STXX is a full 97% below its average Price to Sales ratio at comparable sales levels. This is a rare occurrence and, when taken in context of the other areas of our analysis, can be a strong positive for our outlook for STXX.
STXX Cash Earnings
Price to Cash Earnings analysis is inappropriate for this company due to an insufficient positive cash earnings history. Rather than calculating a potentially misleading Price to Cash Earnings analysis, we have chosen to give STXX a neutral Price to Cash Earnings outlook at this time. However, we should point out that this metric is a significant element in Ockham’s methodology to analyzing the outlook for any company. Therefore, for STXX, our assessment is now more dependent on the Price to Sales analysis, and investors should be cautious with a company with very limited, if any, positive cash earnings.
STXX Dividends
A strong dividend payment history is looked upon as a favorable characteristic on a company’s future and potentially can receive a positive Ockham rating. That being said, we don't require dividend payments for company's whose management has elected to forgo them entirely. While we do like to see companies with healthy and growing dividends, it is not appropriate for all companies, especially those focused on growth. In this regard, we regard STXX as neutral because we do not have historical data for this company's dividends. We will being incorporating this into our analysis as soon as that data is available.
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