February 23, 2009 (FinancialWire) -- South Texas Oil Co. (NASDAQ: STXX) (Current Market Cap: US$6.44 Mil.) said it has entered into definitive agreements with The Longview Fund L.P. to restructure $26.1 million of senior secured debt. The debt restructuring includes the exchange of $16.3 million in principal for shares of series A convertible preferred stock and a debt-non-core asset exchange valued at $9.8 million.

The company has entered into a securities exchange agreement with Longview, under which South Texas Oil will issue to Longview around 1.6 million shares of series A convertible preferred stock in exchange for the surrender and cancellation of around $16.3 million of the company's senior secured debt held by Longview.

The convertible preferred stock has a stated value equal to $10.00 per share, has no coupon rate, does not pay dividends, and has no voting rights. The shares of are convertible into shares of common stock at any time subsequent to ninety days after the issuance of the shares at a conversion price of $0.50 per share of common stock.

South Texas has also entered into a definitive asset purchase and sale agreement with The Longview Fund to sell the company's Colorado DJ Basin properties and its Unit U34 Single Drum Draw-works drilling rig and associated assets for a combined total of $9.8 million. Subject to the terms and conditions of the purchase and sale agreement, on the closing date, South Texas Oil shall convey these assets to Longview in exchange for Longview's discharge and satisfaction of $9.8 million in debt.

The debt-asset exchange transaction for the disposition of both the Colorado property and drilling rig will close concurrently with the series A preferred stock. The Colorado property disposition includes the company's entire 37.5% non-operated working interest in 23,111 gross acres. The assets being conveyed to Longview include around 217,000 barrels of oil equivalent of proved reserves and an estimated eighteen barrels of oil equivalent per day of net production located in Logan County, Colorado.

Following the closing of both transactions, the company's remaining senior secured debt will be around $16.0 million.

San Antonio, Texas-based South Texas Oil is an independent energy company engaged in the acquisition, production, exploration and development of crude oil and natural gas. The company's core operating areas include Texas, Louisiana and the Gulf Coast.

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