UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 10-Q

     [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

               FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2008  OR

 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                             EXCHANGE ACT OF 1934

         FOR THE TRANSITION PERIOD FROM _____________ TO _____________

                       COMMISSION FILE NUMBER 333-123176

                              SOUTH TEXAS OIL COMPANY
                  --------------------------------------------
                 (Name of small business issuer in its charter)


             Nevada                                         74-2949620
 ------------------------------                        ------------------
(State or other jurisdiction of                            (IRS Employer
incorporation or organization)                         Identification No.)


       769 Highway 95 N, Bastrop, TX                         78602
   --------------------------------------              	    --------
  (Address of principal executive offices)                 (Zip Code)


                  512-772-2474 (Telephone) 512-263-5046 (Fax)
                  -------------------------------------------
                          (Issuer's telephone number)


Indicate by check  mark  whether  the  registrant (1)  has  filed  all  reports
required to be filed by Section 13 or 15(d) of the Securities Exchange  Act  of
1934 during the preceding 12 months  (or  for  such  shorter  period  that  the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
                      [X] Yes       [ ] No

Indicate by check mark whether the registrant is a large accelerated filer,  an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated  filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer [ ]  Accelerated filer [ ]


Non-accelerated filer   [ ]  Smaller reporting company [X]


Indicate by check mark whether the registrant is a shell company (as defined in
Exchange Act Rule 12b-2 of the Exchange Act).
                        [ ] Yes      [X]  No

The number of shares outstanding of the Issuer's common stock as of May 14,
2008 was 16,482,571


                               TABLE OF CONTENTS

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

   Consolidated Balance Sheets as of March 31, 2008 and December 31, 2007                             2

   Consolidated Statements of Operations for the Three Months Ended March 31, 2008 and 2007           3

   Consolidated Statements of Stockholders' Equity and Comprehensive Loss for the Three Months
   Ended March 31, 2008  									      4

   Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2008 and 2007           5

   Notes to Consolidated Financial Statements                                                         6

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	      10

Item 4T. Controls and Procedures								      16

PART II - OTHER INFORMATION									      18

Item 1. Legal Proceedings									      18

Item 6. Exhibits										      19

</TABLE>



<PAGE>

PART I.   FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

   The  condensed  financial  statements  of  South  Texas Oil Company included
herein  have  been  prepared in accordance with the instructions  to  quarterly
reports for a Smaller  Reporting Company on Form 10-Q pursuant to the rules and
regulations of the Securities and Exchange Commission.  Certain information and
footnote data necessary for fair presentation of financial position and results
of operations in conformity  with  accounting  principles generally accepted in
the United States of America have been condensed  or  omitted.  It is therefore
suggested  that  these  financial  statements be read in conjunction  with  the
summary of significant  accounting policies  and  notes to financial statements
included in South Texas  Oil Company's Annual Report  on  Form  10-KSB  for the
year ended December 31, 2007.

   In the opinion of management, all adjustments necessary in order to make the
financial position, results of operations and changes in financial position  at
March  31, 2008, and for all periods presented, not misleading, have been made.
The results  of  operations  for  the  period  ended  March  31,  2008  are not
necessarily an indication of operating results to be expected for the full year
ending December 31, 2008.



				SOUTH TEXAS OIL COMPANY
		UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
				   March 31, 2008






				SOUTH TEXAS OIL COMPANY
				  TABLE OF CONTENTS
				   March 31, 2008


								      Pages
								      -----
Consolidated Financial Statements

  Unaudited Consolidated Condensed Balance Sheets at
	March 31, 2008 and December 31, 2007				-3-

  Unaudited Consolidated Condensed Statements of Operations
	for the three months ended March 31, 2008 and  2007		-4-

  Unaudited Consolidated Condensed Statement of Changes in
	Stockholders' Equity for the three months ended
	March 31, 2008 							-5-

  Unaudited Consolidated Condensed Statements of Cash Flows
	for the three months ended March 31, 2008 and 2007		-6-

Notes to Unaudited Consolidated Condensed Financial Statements		-7-


<PAGE>
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				SOUTH TEXAS OIL COMPANY
			      CONSOLIDATED BALANCE SHEETS
			 MARCH 31, 2008 AND DECEMBER 31, 2007
				      (Unaudited)

							     March 31,		   December 31,
							       2008		      2007
							-----------------	-----------------

ASSETS

Current assets:
   Cash and cash equivalents				$	2,226,495 	$	2,186,428
   Trade accounts receivables					2,822,379 		4,226,171
   Prepaid expenses and other					    8,850 		    4,249
							-----------------	-----------------
	Total current assets					5,057,724 		6,416,848
							-----------------	-----------------
Property and equipment:
   Oil and gas properties, at cost, based on
     successful efforts method:
   Proved properties					       25,815,642 	       23,383,575
   Unproved properties					       30,757,344 	       30,757,344
    Less accumulated depreciation, depletion
     and amortization					       (6,749,865)	       (5,727,612)
							-----------------	-----------------
	Total oil and gas properties, net		       49,823,121 	       48,413,307
							-----------------	-----------------
   Other property and equipment
    Drilling equipment						3,138,258 		3,138,258
    Vehicles						 	  172,608 		  172,608
    Other 						 	  124,562 		  119,495
    Less accumulated depreciation and amortization.		 (180,337)		 (130,397)
							-----------------	-----------------
	Total other property and equipment, net.		3,255,091 		3,299,964
							-----------------	-----------------
	Total property and equipment			       53,078,212 	       51,713,271
							-----------------	-----------------
Debt issuance costs						4,662,482 		5,298,274
							-----------------	-----------------
	Total assets					$      62,798,418 	$      63,428,393
							=================	=================
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Current maturities of notes payable
     and long-term debt					$ 	1,403,921 	$ 	1,404,185
   Current maturities of long-term debt,
     related party						    9,412 		   17,067
   Accounts payable						2,137,806 		1,564,243
   Accrued liabilities						2,318,779 		3,469,689
   Derivative liability						2,100,000			-
							-----------------	-----------------
	Total current liabilities				7,969,918 		6,455,184

Notes payable and long-term debt			       26,552,825 	       24,986,861
Asset retirement obligation					  838,834 		  801,941
							-----------------	-----------------
	Total liabilities				       35,361,577 	       32,243,986
							-----------------	-----------------
Commitments and contingencies

Stockholders' equity:
   Preferred stock;  $0.001 par value, 5,000,000
     shares authorized,	none issued or outstanding.			- 			-
   Common stock: $0.001 par value, 50,000,000 shares
     authorized, 16,482,571 shares issued and outstanding	   16,483 		   16,483
   Additional paid-in capital				       40,151,393 	       39,921,615
   Accumulated deficit					      (12,116,035)	       (8,753,691)
   Accumulated other comprehensive loss			         (615,000)			-
							-----------------	-----------------
	Total stockholders' equity			       27,436,841 	       31,184,407
							-----------------	-----------------
	Total liabilities and stockholders' equity	$      62,798,418 	$      63,428,393
							=================	=================


The accompanying notes are an integral of these unaudited consolidated condensed financial statements
						-2-

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<PAGE>

<TABLE>
<CAPTION>
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				SOUTH TEXAS OIL COMPANY
			CONSOLIDATED STATEMENTS OF OPERATIONS
		For the Three Months Ended March 31, 2008 and 2007

							      2008		     2007
							-----------------	--------------

Revenue
   Oil and gas sales					$	1,877,635 	$	95,483
   Drilling services							- 		     -
							-----------------	--------------
	Total revenue						1,877,635 		95,483
							-----------------	--------------
Cost and expenses:
   Production expenses						  708,265 		28,209
   Drilling costs							- 		     -
   General and administrative expenses				1,244,065 	       215,739
   Depreciation, depletion and amortization			1,084,367 		70,195
   Production and other taxes					   84,800 		 2,602
							-----------------	--------------
	Total costs and expenses				3,121,497 	       316,745
							-----------------	--------------
    Loss from operations				       (1,243,862)	      (221,262)

Other income and expenses:
   Interest income					            4,374		13,022
   Interest expense					       (1,072,856)	      (327,375)
   Derivative loss					       (1,050,000) 		     -
							-----------------	--------------
	Total other income and expenses, net		       (2,118,482)	      (314,353)
							-----------------	--------------
	Net loss					$      (3,362,344)	$     (535,615)
							=================	==============
Net loss per common share - basic and diluted		$	    (0.20)	$	 (0.05)
							=================	==============
Weighted average number of common shares outstanding -
	basic and diluted				       16,482,571 	    11,071,453
							=================	==============


The accompanying notes are an integral of these unaudited consolidated condensed financial statements
						-3-

</TABLE>
<PAGE>


<TABLE>
<CAPTION>
<S>		<C>		<C>

SOUTH TEXAS OIL COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 2008
											Accumulated
					    Common Stock		Additional	Other
					----------------------		Paid-In		Comprehensive	Accumulated
					Shares		Amount		Capital		Income (Loss)	Deficit		Total
					----------     -------		-----------	-------------	------------	-----------


Balance at December 31, 2006		16,482,571     $16,483 		$39,921,615 	$ 	    - 	$ (8,753,691)	$31,184,407

Net loss					 - 	     - 			  - 		    - 	  (3,362,344)	 (3,362,344)

Other comprehensive loss - change
	in unrealized loss on
	hedge transaction			 - 	     - 			  - 	     (615,000)		   - 	   (615,000)

Stock options issued for services		 - 	     - 		    229,778 				   - 	    229,778
					----------     -------		-----------	-------------	------------	-----------
Balance at December 31, 2007		16,482,571     $16,483 		$40,151,393 	$    (615,000)	$(12,116,035)	$27,436,841
					==========     =======		===========	=============	============	===========



The accompanying notes are an integral of these unaudited consolidated condensed financial statements
						-4-

</TABLE>
<PAGE>


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				SOUTH TEXAS OIL COMPANY
			CONSOLIDATED STATEMENTS OF CASH FLOWS
		For the Three Months Ended March 31, 2008 and 2007

								     2008	     2007
								------------	------------


Cash flows from operating activities:
   Net loss							$ (3,362,344)	$   (535,615)
   Adjustments to reconcile net loss to net cash
    provided (used) by operating activities:
   Derivative loss and revenue reduction			   1,485,000 		   -
   Depreciation, depletion and amortization			   1,084,367 	      63,506
   Amortization of deferred loan costs				     635,793 	     316,722
   Amortization of debt discount				     106,950
   Compensatory common stock and option issuances			   - 	      11,875
   Common stock issued for royalties				           - 		   -
   Amortization of deferred compensation			     229,778 		   -
   Changes in operating assets and liabilities:
      Trade accounts receivables				   1,403,792 	      14,030
      Prepaid expenses and other				      (4,601)	      (5,248)
	Accounts payable					     573,563 	      79,139
	Accrued liabilities					  (1,126,193)	      83,258
								------------	------------
  Net cash provided (used) by operating activities		   1,026,105	      27,667
								------------	------------
Cash flows from investing activities:
	Purchase of property, plant and equipment		  (2,437,134)	  (1,381,617)
								------------	------------
  Net cash used by investing activities				  (2,437,134)	  (1,381,617)
								------------	------------
Cash flows from financing activities:
   Proceeds from notes payable and long-term debt		   2,000,000 		   -
   Payments of notes payable and long-term debt			    (541,249)	     (70,000)
   Payments of related party notes payable			      (7,655)	     (39,617)
   Proceeds from sale of common stock					   - 	   1,124,531
								------------	------------
  Net cash provided by financing activities			   1,451,096 	   1,014,914
								------------	------------
Net increase in cash and cash equivalents			      40,067	    (339,036)

Cash and cash equivalents at beginning of year			   2,186,428 	   1,874,862
								------------	------------
Cash and cash equivalents at end of year			$  2,226,495 	$  1,535,826
								============	============
Supplemental disclosure of cash flow information
	Cash paid for interest expense				$		$     10,500
								============	============




The accompanying notes are an integral of these unaudited consolidated condensed financial statements
						-5-

</TABLE>




        		 SOUTH TEXAS OIL COMPANY
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BUSINESS ORGANIZATION AND BASIS OF PRESENTATION

South  Texas Oil Company was incorporated under the laws of the State of Nevada
on July  31, 2001 as Nutek Oil, Inc., a wholly owned subsidiary of Nutek, Inc.,
a  Texas  corporation.   The  Company's  Articles  of  Incorporation  authorize
50,000,000 shares of Common  Stock  at  $.001 Par Value and 5,000,000 preferred
shares  at  $.001  Par  Value.   On  August  1,   2001  and  January  8,  2004,
respectively, Nutek, Inc. distributed as a dividend  a  total of 703,012 shares
of Nutek Oil, Inc. (Nevada) to the shareholders of Nutek,  Inc.   In a December
24, 2003 Form 8-K, Nutek, Inc. reported that it had distributed as  a  dividend
to  its  shareholders  all of the shares of Nutek Oil's common stock that Nutek
Inc. has an interest in.

On April 1, 2005, the Company  changed  its  name from Nutek Oil, Inc. to South
Texas Oil Company.

Subsequent to the incorporation of the Company  and  its "spin off" from Nutek,
Inc.  as  a  wholly  owned subsidiary, the Company assumed  control  of  a  non
operating former subsidiary  of Nutek, Inc. that had been incorporated in Texas
as Nutek Oil, Inc in December  1998.  On February 10, 2006, the Nutek Oil, Inc.
incorporated  in  Texas  changed  its  name  to  Southern  Texas  Oil  Company.
Presently, Southern Texas Oil Company is  a  wholly  owned  subsidiary  if  the
Company.

On  April  4, 2007, the Company formed Leexus Operating Company, a wholly owned
subsidiary incorporated pursuant to the laws of Texas. Leexus Operating Company
is the surviving entity of a merger between Leexus Operating Company and Leexus
Properties Corp.,  pursuant  to  which  the  Company  gained control of certain
leasehold assets in South Texas. Subsequent to the merger  transaction,  Leexus
Operating Company changed its name to STO Operating Company.

On  August  15,  2007,  the Company formed STO Drilling Company, a wholly owned
subsidiary incorporated pursuant  to the laws of Texas. STO Drilling Company is
responsible for all drilling operations  which  are  conducted  directly by the
Company.

On  September  18, 2007, the Company formed STO Properties LLC, a wholly  owned
subsidiary of STO  Operating  Company, as a limited liability company under the
laws of Texas.  STO Properties  LLC  owns  certain  oil and gas assets that are
part of the business of the Company.

The consolidated  financial  statements  included  herein,  which have not been
audited  pursuant to the rules and regulations of the Securities  and  Exchange
Commission   ("SEC"),   reflect  all  adjustments  which,  in  the  opinion  of
management, are necessary  to  present  a fair statement of the results for the
interim  periods  on  a  basis consistent with  the  annual  audited  financial
statements.  All  such adjustments  are  of  a  normal  recurring  nature.  The
results of operations for the interim periods are not necessarily indicative of
the results to be expected for an entire year.  Certain information, accounting
policies and footnote  disclosures  normally  included  in financial statements
prepared  in accordance with accounting principles generally  accepted  in  the
United States  of  America  have  been  omitted  pursuant  to  such  rules  and
regulations, although the Company believes that the disclosures are adequate to
make  the  information  presented  not  misleading.  These financial statements
should be read in conjunction with the Company's  audited  financial statements
included  in  the  Company's  Annual Report on Form 10-KSB for the  year  ended
December 31, 2007.

NOTE 2 - CRITICAL ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The attached consolidated financial  statements  include  the  accounts  of the
Company  and  its  wholly  owned  subsidiaries, collectively referred to as the
"Company".   All significant inter-company transactions have been eliminated in
consolidation.

USE OF ESTIMATES

The preparation of financial statements  in  conformity with generally accepted
accounting principles requires that management  make  estimates and assumptions
which affect the reported amounts of assets and liabilities  as  of the date of
the  financial  statements  and revenues and expenses for the period  reported.
Actual  results  may  differ  from  these  estimates.   The  estimates  include
amortization and depreciation of  capitalized  costs  of  oil wells and related
equipment.  Management emphasizes that amortization and depreciation  estimates
are inherently  imprecise.  Actual  results  could materially differ from these
estimates.

PROPERTY AND EQUIPMENT

The Company follows the "successful efforts" method of accounting for its costs
of  acquisition,  exploration  and development of  oil  properties.   Costs  to
acquire  mineral  interest in oil  and  gas  properties,  to  drill  and  equip
exploratory wells that  find  proved  reserves,  to drill and equip development
wells  and  related  asset  retirement costs are capitalized.  Costs  to  drill
exploratory wells that do not  find proved reserves, geological and geophysical
costs, and costs of carrying and retaining unproved properties are expensed.

Unproved  oil  and  gas  properties   that  are  individually  significant  are
periodically assessed for impairment of  value  and a loss is recognized at the
time  of  impairment  by  providing  an impairment allowance.   Other  unproved
properties  are  amortized  based on the  Company's  experience  of  successful
drilling and average holding  period.   Capitalized  costs of producing oil and
gas  properties,  after  considering  estimated  residual salvage  values,  are
depreciated and depleted by the unit-of-production  method.   Support equipment
and  other  property and equipment are depreciated over their estimated  useful
lives.

On the sale or retirement of a complete unit of a proved property, the cost and
related accumulated  depreciation,  depletion,  and amortization are eliminated
from the property accounts, and the resultant gain  or  loss is recognized.  On
the  retirement  or  sale  of a partial unit of proved property,  the  cost  is
charged  to  accumulated  depreciation,  depletion,  and  amortization  with  a
resulting gain or loss recognized in income.

On the sale of an entire interest  in  an  unproved  property  for cash or cash
equivalent,  gain or loss on the sale is recognized, taking into  consideration
the amount of  any  recorded  impairment  if  the  property  has  been assessed
individually.   If  a  partial  interest  in an unproved property is sold,  the
amount received is treated as a reduction of the cost of the interest retained.

Depreciation is computed primarily on the straight-line  method  for  financial
statements  purposes.  All  assets  are  booked  at historical cost. Management
reviews  on  an  annual  basis  the  book  value,  along with  the  prospective
dismantlement, restoration, and abandonment costs and  estimate  residual value
for  the  assets,  in  comparison  to  the  carrying  values  on  the financial
statements.

OIL AND GAS PRODUCING ACTIVITIES

Suspended well cost - Statement of Financial Accounting Standards Statement No.
19  "Financial  Accounting  and  Reporting  by Oil and Gas Producing Companies"
(SFAS 19)  as amended by Staff Position 19-1  "Accounting  for  Suspended  Well
Costs"  allows  suspended well costs to remain capitalized beyond one year from
drilling if certain  specific  criteria  are  met  and  additional  disclosures
provided.

Exploratory  costs,  excluding  the  cost  of  exploratory  wells  and acquired
exploration  rights,  are  charged  to expense as incurred. Drilling costs  for
exploratory wells are capitalized pending the determination of the existence of
proved reserves. If reserves are not  found,  the drilling costs are charged to
operating expense. Oil and gas lease acquisition  costs  are  capitalized  when
incurred.
						-6-


<PAGE>

        		 SOUTH TEXAS OIL COMPANY
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - CRITICAL ACCOUNTING POLICIES

OIL AND GAS PRODUCING ACTIVITIES

Unproved   properties  with  individually  significant  acquisition  costs  are
assessed quarterly on a property-by-property basis, and any impairment in value
is  recognized.  Unproved  properties  with  acquisition  costs  that  are  not
individually  significant  are  aggregated,  and  the  portion  of  such  costs
estimated  to  be  nonproductive,  based on historical experience, is amortized
over the average holding period. If  the  unproved properties are determined to
be productive, the appropriate related costs  are transferred to proved oil and
gas properties.

Development  costs  incurred  to drill and equip development  wells,  including
unsuccessful development wells, are capitalized.

REVENUE RECOGNITION

Oil, gas and natural gas liquids  revenues are recognized when the products are
sold to a purchaser at a fixed or determinable price, delivery has occurred and
title has transferred, and collection  of the revenue is reasonably assured. At
times  the  Company  may sell more or less  than  our  entitled  share  of  gas
production. When this  happens,  the  Company  uses  the  entitlement method of
accounting  for  gas  sales, based on our net revenue interest  in  production.
Accordingly, revenue is  deferred  for  gas  deliveries  in  excess  of our net
revenue  interest,  while  revenue  is  accrued  for  the  undelivered volumes.
Production  imbalances and related values at December 31, 2007  and  2006  were
insignificant.

NOTE 3 - RELATED PARTY NOTES PAYABLE AND TRANACTIONS

The Company has  notes  payable  to  Murray Conradie and Jason Griffith, former
executive officers of the Company, related  to  the  purchase  of  wells during
2005,  with a remaining principal balances totaling$9,412 at March 31, 2008 and
$17,067 at December 31, 2007. These notes bear interest at 7% per year is to be
paid monthly for a period of  thirty  six  (36)  months (from  April 2005) with
interest of seven percent (7%) accruing on the outstanding balance. The monthly
payment  amount  is  not  to  exceed  the  income  from the minimum net revenue
interest (NRI) from the prior  month's  production.  Payment  will  be adjusted
accordingly and the remaining balance increased by the monthly shortfall should
any occur.

The Company leases approx 4 acres in Bigfoot, Texas and uses these premises for
a field office and storage for  all  the  vehicles,  oil  field  equipment  and
supplies.  This property is owned by Murray Conradie  and  the  monthly  rental
amount is $750.

The Company utilizes a tractor and road maintainer for clearing and maintaining
leases, lease roads, oil well locations  and  preparing  sites  for  workovers.
This equipment is owned by Murray Conradie  and  the  Company  pays  a  monthly
rental amount of $1,286 for usage of this equipment.

NOTE 4 - INCOME TAXES

Deferred  income  taxes  reflect  the net tax effects of temporary  differences
between the carrying amounts of assets  and liabilities for financial statement
purposes and the amounts used for income  tax  purposes. Significant components
of the Company's deferred tax liabilities and assets  as  of March 31, 2008 and
December 31, 2007 relate to net operation loss carryforwards  and  the basis of
oil and gas properties. The net deferred tax asset has been fully offset  by  a
valuation allowance at both March 31, 2008 and December 31, 2007.

At  March  31,  2008,  the  Company  had  unused  federal  net  operating  loss
carryforwards  of  approximately $11,280,000 which expire in 2021 through 2028.
Following is a reconciliation of the Company's effective income tax rate to the
federal statutory rate for the three months ended March 31, 2008 and 2007:

                                   		    2008              2007
					       -------------	--------------
                               			AMOUNT	   %     AMOUNT      %
 					      ----------  --	---------   --
Income tax benefit at federal statutory rate  $1,143,197  34 	$ 182,109   34
Non-deductible interest expense                (216,170)  (6)    (107,685) (20)
Change in valuation allowance                  (927,027) (28)     (74,424) (14)

     Provision for income taxes               $        -    - 	$       -    -




 						-7-


<PAGE>

NOTE 5 - DERIVATIVE HEDGE TRANSACTION

The company entered into a hedging transaction effective January 1, 2008.  This
instrument  is  from  1/1/08  to  12/31/08  and comes with a $1,000,000 line of
credit  which  calls  for  monthly  settlement when  exceeded.  For  accounting
purposes, the instrument is treated as  50%  as  a  hedge  (8,000 Bbls) and the
other 50% as a derivative. The instrument has a floor of $85  per Bbl and a cap
of $100 per Bbl.  The company has recorded a reduction in revenue  of  $435,000
representing the actual cost of the hedge for the quarter, $615,000 recorded in
the  other  comprehensive income in the equity section, a $1,050,000 derivative
loss  in the other  income  section  of  the  statement  of  operations  and  a
$2,100,000 derivative liability to the financials.


NOTE 6 - MATERIAL SUBSEQUENT EVENTS

(a)   On  January  22, 2008, our Board of Directors appointed current president
Scott Zimmerman as our  Chief Executive Officer, effective upon the resignation
of  Mr. Conradie from that  position.   Mr.  Zimmerman,  who  will  retain  his
position as President, also was elected as an additional member of our Board of
Directors,  pursuant  to a contemporaneous vote of the Directors to enlarge the
Board of Directors from  5  to  6  members.  Mr.  Zimmerman  has  served as our
President since June 18, 2007.

Mr. Conradie has been retained by us as a consultant for a one year  period  to
assist  in  the management transition and to offer guidance on specific current
or anticipated  business  opportunities  and  projects,  which agreement can be
terminated by either party after the expiration of the initial  90  days of the
contract  term.  We have agreed to continue Mr. Conradie's current compensation
package, including benefits, on an independent contractor basis during the full
consulting contract period.

On January 22, 2008, our Board of Directors also elected Mr. Michael Pawelek as
its new Chairman  and  outside director, effective immediately.  Mr. Pawelek, a
geophysicist,  has held senior  management  positions  throughout  his  27-year
career in the exploration,  production and oilfield services industries.  After
working south Texas fields early in his career, Mr. Pawelek later served as CEO
of Universal Seismic Associates,  a  seismic acquisition and processing company
that later became publicly traded and  was  ultimately  sold.  He also held the
position  of  President  at BOSS Exploration & Production Corporation,  Inc.  a
privately held Gulf Coast production company.  He currently is President of San
Antonio based Sonterra Resources, Inc. which operates assets in the Texas State
waters.

On January 22, 2008, our Board  of  Directors  accepted  the resignation of Mr.
Murray N. Conradie as our Chairman, Director and Chief Executive  Officer.  Mr.
Conradie's  resignation marks our transition from an asset development  company
to that of an  exploration  and  production  company,  through the simultaneous
appointment  of a seasoned, technically oriented oil and  gas  management  team
with experience in growing exploration and production.

(b)  On January  22, 2008, our Board of Directors executed a consent in lieu of
special meeting, dated  January  16, 2008, to amend Sections 3.2 and 3.3 of our
Bylaws.  The amendments to the Bylaws were implemented  to remove any ambiguity
with respect to the provisions thereof, and to provide for a more effective and
efficient management of our affairs  with respect to the increase in the number
of our directors, as may be determined  by  the Board of Directors from time to
time to be in the best interest of the Company, and the filling of vacancies in
the members of the Board of Directors created  by  the  resignation, removal of
such members or other cause, resulting in such vacancies.

						-8-


<PAGE>

Prior to the amendments, the Bylaws required (i) that vacancies on the Board of
Directors  be  filled  only  by  "a  special  election"  called  to  elect  all
directorships  including  those  not  currently  vacant;  (ii)  that  any   new
directorship  created  by  an  increase  in the authorized number of directors,
shall be filled by "voting stock at a special meeting called for such purpose;"
and (iii) that the voting of our common stock be cumulative.

The amended Bylaws provide (i) that vacancies  on  the  Board  of  Directors be
filled  by  an affirmative vote of a majority of the remaining directors;  (ii)
that any new  directorship  created  by an increase in the authorized number of
directors be filled by election by the  Board  of  Directors and (iii) that the
voting of our common stock not be cumulative.

We have one class of voting securities.  The amendment  of  our Bylaws does not
disparately  reduce or restrict the voting rights of existing  shareholders  of
that class.

(c)  On February  15, 2008, we entered into an "Amendment to Gas Contract dated
October  1,  2007" with  DCP  Midstream,  for  the  gathering,  processing  and
marketing of our  Bastrop Field natural gas volumes.  The contract allows us to
sell, for the first  time,  our  natural  gas  in  Bastrop  County,  Texas.  At
approximately  1,500  BTU/cf,  Bastrop  Field  associated  gas  is high-BTU and
liquids-rich,  allowing for further revenue by stripping the liquids  from  the
natural gas.  High-BTU  gas commands a substantial premium to NYMEX natural gas
prices due to the high propane,  ethane,  butane  and  methane  content  of the
natural  gas.   These  natural  gas  liquids  ("NGLs")  can  be  sold at prices
approaching crude oil "normal" prices, less a discount, rather than  at natural
gas  prices.   With  this  recent arrangement, we are able to convert what  was
essentially a stranded-gas asset into a new source of revenue.

According to the agreement,  as  amended, we will begin to sell initial volumes
of 150 thousand cubic feet per day  (Mcf/d)  of natural gas to 200 Mcf/d, prior
to  July  31,  2008.  As part of the contract terms,  we  are  responsible  for
$186,000 of capital investment  in  the  project,  for  which it will receive a
repayment of $0.25/Mcf over time if 220,000 MMcf of gas is  produced within two
years  of  first sales.  There are no minimum volume commitments  and,  as  gas
volumes increase,  the  infrastructure  will  be  improved  to meet the field's
throughput requirements.

(d)   On  February  19,  2008 we announced 2008 risk management activities with
respect  to  the  entry into  hedge  contracts  with  MF  Global  Ltd.   Hedged
production benchmark  volumes  were  initially set at 16,000 barrels of oil per
month, current net production.  The underlying risk management agreement, which
has  an  initial  term  ending  December 31,  2008,  was  intended  to  deliver
predictable cash flow for 2008, by  using  hedge  transaction  contacts  with a
"collar"  floor  price of $85 per barrel and a ceiling of $100 per barrel.   On
April 30, 2008, the  parties  agreed  in principle to amend the risk management
agreement to extend the term for an additional  year  and  reduce the benchmark
volumes by half to 8,000 barrels per month (approximately 263  barrels  of  oil
per day) and to raise the collar ceiling to $109.75 per barrel for the calendar
year  2009.   MF  Global  Ltd.,  the  counterparty to our hedge positions, is a
broker  of  exchange-listed  futures and options  and  provides  execution  and
clearing services for exchange-traded  and over-the-counter derivative products
as well as for non-derivative foreign exchange  products  and securities in the
cash  market.   MF  Global  is  rated A3/BBB+/BBB+ by Moody's, S&P  and  Fitch,
respectively.   As  a result of the  collar  ceiling,  we  currently  have  not
benefited from the price  of  oil  exceeding  $100.00  per barrel, since we are
obligated to pay a margin calls in excess of our credit  line with MF Global on
the  hedge  contracts,  based on the differential between the  average  monthly
price per barrel of oil in  excess of the collar ceiling, based upon the stated
benchmark production of 8,000 barrels per month.

During April and May 2008, Marquis Master Fund, L.P agreed to fund margin calls
under the hedge contracts.  In  connection  therewith, we received an aggregate
$1,480,921.51 from Marquis to satisfy margin  calls  and  issued  the following
Subordinated Demand Promissory Notes:


Issue Date      Amount of Note

April 22, 2008	$  389,000.00
April 24, 2008 	$  216,746.51
May 7, 2008    	$  545,307
May 9, 2008    	$  420,868


Marquis  has  made  demand  for  the payment of the April, 22 and May  7,  2008
Notes, in the aggregate amount of $937,953.43, which has been paid.  Demand has
not  been made
for the April 24 and May 9, 2008 Notes.

On  May  14  and  May  15,  22008,  we  drew  down  $2,000,000  and  $1,000,000
respectively,  from  a previously reported credit facility established for  our
benefit by Marquis and  another  lender.   We received a net of $750,000 of the
$1,000,000 draw down, with the $250,000  differential being  applied by Marquis
to the April, 22 and May 7, 2008 Notes.  The balance of $687,953.43 due on this
note was paid by us directly to Marquis.

(e)   On  April  9, 2008, we finalized a new amended credit facility  agreement
with The Longview  Fund,  L.P.,  a  California  limited partnership and Marquis
Master Fund, L.P., a British Virgin Islands limited partnership, dated April 3,
2008.   This  agreement  amended  and  restated  in  its  entirety  all  terms,
conditions and provisions of the appropriate operative  documents  of a January
31, 2007 transaction between us and Longview, as previously amended on or about
September 25, 2007.

The  January  2007  agreement  gave  us  the  right to borrow from Longview  an
aggregate  amount  not  to exceed $15,000,000.  Borrowings  under  this  credit
facility were secured by  a security interest in certain of our collateral.  On
September 25, 2007, we agreed  with  Longview  to increase the aggregate amount
that we could borrow to $30,000,000.  We and our wholly owned subsidiaries also
agreed  to  grant to Longview perpetual overriding  royalty  interests  in  the
hydrocarbon production  of  all of our and our subsidiaries' current and future
interest  in  our  then current  properties,  except  for  our  Southern  Texas
properties, to guaranty  certain  defined  obligations, and to execute security
and pledge agreements necessary to provide Longview  with  a  valid, perfected,
first priority security interest in substantially all of the our assets and the
assets of our subsidiaries.

On  February  4,  2008, Longview and Marquis entered into a Purchase  and  Sale
Agreement, pursuant  to  which  Marquis  acquired  from  Longview a twenty-five
percent (25%) interest in certain tangible and intangible  assets  and credits,
and other rights with respect to our agreements with Longview, that have inured
or  may  inure  to  the  benefit  of Longview pursuant to the January 31,  2007
transaction, as amended.

By the April 2008 amendment, we and  our  wholly  owned  subsidiaries agreed to
grant to Longview and Marquis certain mortgages in the oil  and  gas  producing
properties held by us and our subsidiaries and the perpetual overriding royalty
interests  in  the  hydrocarbon  production of all of our and our subsidiaries'
current and future interests in our  then  current real property, including the
Southern Texas properties.

(f)  On April 9, 2008, we signed a definitive Contract Operating Agreement with
Sonterra Operating, Inc.  As of the effective  date,  April  1,  2008, Sonterra
began  overseeing  daily  operations,  in our name, on behalf of, and  for  our
benefit, with respect to both operating  services  and  accounting services for
our operated and non-operated properties as an independent contractor acting in
the role of contract operator.  The initial contact term  was  set  at 90 days,
with  a  month-to-month  extension  as approved by both parties, going forward.
Compensation for services rendered under  Contract Operating Agreement has been
set  at $75,000 per month, which is competitive  with  industry  standards  for
similar  services  provided  by third party contact operators.  Sonterra senior
management has experience providing  similar services at predecessor companies.
Under the terms of the agreement, we will continue to lead the operation of our
Colorado assets with the assistance of the existing Colorado contract operator.

(g)  On May 15, 2008, we settled a lawsuit  and  counter lawsuit between Leexus
Oil & Gas, LLP, Mark Jaehne, and Bennie Jaehne regarding disputes arising under
a previously reported Agreement and Plan of Merger,  which Merger Agreement was
executed by the parties on April 20, 2007.  The Merger Agreement called for our
payment of $4,000,000 over time based upon a percentage  of  the  production of
certain  oil and gas interests acquired by us under the Merger Agreement,  plus
the issuance of 1,333,333 shares of our common stock to the Jaehnes at closing.
With this settlement,  we  have  no lawsuits or claims pending by or against us
arising out of the Merger Agreement.

The settlement  provides  for  our  payment at closing of $2,000,000 and future
payments of $2,000,000 payable in 4 equal  installments  every  6 months, which
will  extinguish  all  of our past, current and future obligations due  to  the
Jaehnes, as selling shareholders under the Merger Agreement, including, without
limitation, their collective  2/3rds  share  of  $4,000  000 million additional
consideration  payable  out of future production of the acquired  oil  and  gas
interests.  The settlement  also  provides  for the return of 1,333,333 of  our
common stock issued to Mark Jaehne and Bennie Jaehne, now  and  in  the future,
all of which will  be  based  upon and coincident with the settlement agreement
payment schedule  of  the  up front and scheduled payments  of  the  $4,000,000
Merger Agreement consideration.  We will not be obligated to pay any additional
amounts  for  the  repurchase  of  these shares of common stock.  In  addition,
certain title curative instruments to be filed of public record will cure title
disputes between the parties that had been asserted in the lawsuits.

In  addition  to  resolving claims arising  under  the  Merger  Agreement,  the
settlement agreement  fully  and  finally  resolves all disputes between us and
Leexus Oil & Gas, LLP, arising outside of the  scope  of  the  Merger Agreement
with respect to operations performed on the properties acquired  in  the Merger
Agreement.   The  settlement  agreement  does not involve the repurchase of  an
additional 666,666 shares of our common stock issued to William Zeltwanger, who
was another selling shareholder under the Merger Agreement nor the acceleration
of  Mr.  Zeltwanger's proportionate 1/3 share  of  the  $4  million  additional
consideration provided under the Merger Agreement, which obligation will remain
payable under  the  applicable  terms  and  conditions of the Merger Agreement.
Neither we nor Mr. Zeltwanger asserted any claims  against  each  other  in the
lawsuits,  and  Mr.  Zeltwanger  remains  as our Vice President, as well as the
owner  of  666,666  shares issued to him as the  third  of  the  three  selling
shareholders under the Merger Agreement.

						-9-


<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

              SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS'

   This  Quarterly  Report  on Form 10-Q  contains  forward-looking  statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of  the  Securities Exchange Act  of  1934.   In  some  cases,  forward-looking
statements  are  identified  by terms such as "may", "will", "should", "could",
"would",   "expects",   "plans",   "anticipates",    "believes",   "estimates",
"projects",  "predicts",  "potential",  and  similar  expressions  intended  to
identify   forward-looking   statements.   Such  statements  include,   without
limitation, statements regarding:

       * fluctuations in, oil or gas production or in oil or gas prices
       * estimates of required capital expenditures
       * fluctuations in the cost of drilling, completion and oil production or
         other costs of production and operations
       * our inability to meet growth projections
       * our plans and expectations with respect  to future acquisitions of oil
         and gas rights leases
       * the expected benefits and results from our  geophysical  research  and
         development efforts;
       * our  belief   that  we  will  have  sufficient  liquidity  to  finance
         operations into early 2009;
       * the amount of cash necessary to operate our business;
       * our ability to raise additional capital when needed;
       * general economic conditions; and
       * the  anticipated  future financial performance and business operations
         of our company.

   These forward-looking  statements are only predictions and involve known and
unknown risks, uncertainties,  and  other  factors  that  may  cause our actual
results,  levels  of  activity,  performance, or achievements to be  materially
different  from  any  future  results,  levels  of  activity,  performance,  or
achievements expressed or implied  by  such  forward-looking  statements. Also,
these  forward-looking statements represent our estimates and assumptions  only
as of the  date  of  this  Report.   Except  as  otherwise  required by law, we
expressly  disclaim  any  obligation  or  undertaking  to release publicly  any
updates or revisions to any forward-looking statement contained  in this Report
to reflect any change in our expectations or any change in events,  conditions,
or circumstances on which any of our forward-looking statements are based or to
conform  to  actual  results.   Factors  that  could  cause  or  contribute  to
differences  in  our  future  financial  and  operating  results  include those
discussed  in the risk factors set forth in Item 1(c) of our Annual  Report  on
Form 10-KSB  for  the  year ended December 31, 2007, as well as those discussed
elsewhere in this Report.  We  qualify all of our forward-looking statements by
these cautionary statements.

   You  should read this section  in  combination  with  the  section  entitled
Management's  Discussion  and  Analysis  of  Financial Condition and Results of
Operations for the year ended December 31, 2007  included  in our Annual Report
on Form 10-KSB for the year ended December 31, 2007.

OVERVIEW

   The Company derives its revenues from its producing oil and  gas properties,
primarily in South and Central Texas, with some revenue derived from properties
in  Colorado.   The  substantial  majority  of  these  properties  involve  the
production of oil.  Our rights to these properties consist of working interests
in producing oil wells having proved reserves.

   We  develop  and  operate  oil and gas properties with proven reserves.   We
derive  our  revenue  from  the production  of  oil  and  gas  properties,  the
substantial majority of which  are  oil  properties.   In  the second and third
quarters of 2007, we gained control of certain leasehold oil  and gas assets in
South  Central  Texas  properties,  which  significantly  increased  our  total
leasehold acreage and production capabilities.  These assets consist of working
interests in producing oil and gas wells having proved reserves.  For  the 2007
year, our average production base was approximately 71% crude oil and 29%  gas.
Our  capital  for  investment  in  producing  oil  and  gas properties has been
provided  by the sale of common stock to our shareholders  and  a  $30  million
credit facility with our major shareholder.


						-10-


<PAGE>

   Our strategy is to focus in domestic areas where major oil and gas producing
companies have  reduced their exploration efforts to move offshore and overseas
in search of larger reserve targets.  Our initial development strategy has been
to acquire such proven  fields  and  attempt  to  increase  production  and the
exploration  of  other  proven  formations  in  the  same fields.  This process
involves  consideration  of  the potential marginal output  of  wells  measured
against production costs that  are  higher  than  the revenue from hydrocarbons
produced.  The reasonable possibility exists that such  marginal wells may have
a  material adverse affect on earnings, as discussed in the  risk  factors  set
forth  in  Item  1(c)  of  our  Annual Report on Form 10-KSB for the year ended
December 31, 2007

   Our primary operational strategy includes the operation of our own projects,
giving us substantial control over  drilling  and production costs.  While most
of  the engineering and geology for our projects  is  performed  by  consulting
firms,  the actual drilling, rework and other field operations are performed on
a project  basis  by  contractors who bid for the work.  This is the most cost-
effective manner of operation,  as the range of expertise and services required
varies by project and time duration.  We have purchased two drilling rigs in an
effort to further reduce costs and increase operational efficiencies.

   At the close of the interim period  covered by this report, we finalized the
negotiation of a Contract Operating Agreement  with  Sonterra  Operating,  Inc.
The  Chief  Executive Officer of Sonterra has been the Chairman of our Board of
Directors since  January  22,  2008.   As  of  April  1,  2008,  Sonterra began
overseeing  our  daily  operations,  including  both  operating  services   and
accounting  services  for  the  operated  and  non-operated  properties,  as an
independent contractor acting in the role of contract operator, responsible for
all day to day field operations, including

   * overseeing exploratory efforts and drilling activities;

   * overseeing  land  administration, land, regulatory  compliance, production
     reporting,  geoscience,   technical,  operational  and  other  duties  and
     responsibilities consistent with the above;

   * overseeing services under existing contracts to gather, transport, market,
     store, or sell oil and gas production, to manage i) the sale of production
     attributable to the Properties; (ii) gathering, compressing, transporting,
     drilling, or other necessary services; and (iii) gas balancing payments in
     lieu of in kind volumes, payments  of  AFEs,  cash calls, insurance, taxes
     and the like;

   * administering the books, records and accounts associated with ownership of
     assets, including daily drilling, workover and  safety  incident  reports;
     preparing  and  filing  all appropriate forms and reports for governmental
     agencies; and preparing and sending reports, change of operator notices or
     designations to third party co-owners as necessary

   * overseeing oil lease repairs  to  electrics,  maintaining the operation of
     the wells, providing production reports to the  Company  and communicating
     with the oil haulers to collect production when necessary.

   * overseeing severance, production and similar taxes, lease rentals, shut-in
     royalties,  minimum royalties, payments in lieu of production,  royalties,
     overriding royalties,  production  payments, net profit payments and other
     similar burdens associated with the ownership of the assets

   Estimating  our  proved  reserves  involves  many  uncertainties,  including
factors  beyond  our control. There are uncertainties  inherent  in  estimating
quantities of proved  oil  reserves since petroleum engineering is not an exact
science. Estimates of commercially  recoverable oil and gas reserves and of the
future net cash flows from them are based upon a number of variable factors and
assumptions including:


						-11-


<PAGE>

       * historical production from the  properties  compared  with  production
         from other producing properties;

       * the effects of regulation by governmental agencies;

       * future oil and prices; and

       * future operating costs, severance and excise taxes, abandonment costs,
         development costs, workover costs and remedial costs.

   Reserve  estimates  were  engineered  by  independent  reservoir engineering
consultants,  Netherland, Sewell & Associates, Inc., as of December  31,  2007.
Total proved reserves were 408,000 BOE, comprised of 388,657 barrels of oil and
1,156 million cubic  feet of natural gas.  The reserve mix is approximately 95%
crude oil.  Approximately  83%  of the proved reserves are classified as proved
developed and 17% are proved undeveloped.   Since  this  was the first outside-
engineered reserve report completed by us on our current assets,  we  have  not
issued  any year-over-year comparisons for proved reserves.  In accordance with
SEC guidelines,  reserve  estimates  do  not  include  any probable or possible
reserves  which  may  exist  for our properties.  The preponderance  of  proved
reserves are located in the Giddings  and  Bastrop  Fields  in  our  core Texas
operating area.

   Based  on the Netherland, Sewell & Associates report, at December 31,  2007,
our estimated,  pre-tax future net cash flows discounted at 10% (commonly known
as the SEC PV-10 figure) for proved reserves was $18.2 million.  In determining
the 2007 PV-10 calculation,  engineers  used  net  year-end commodity prices of
$92.50 per barrel of crude oil at West Texas Intermediate  pricing, adjusted by
lease  for  quality, transportation fees and regional price differentials.   In
determining the  natural  gas quantities, $6.79 per MMBtu of natural gas priced
at Henry Hub was adjusted by  lease  for  Btu  content, transportation fees and
regional price differentials.  The reserve summary  at Based on the Netherland,
Sewell & Associates report, at December 31, 2007, is as follows:


                  	Net Reserves           Value (M$)
Category             Oil(MBbl) Gas(MMcf)   Future Net Revenue   SEC PV-1
Proved Developed
Producing         	308.4     1,156    	$      23,741   $ 16,489
Non-Producing     	 15.6         -           	1,095        973
Proved Undeveloped	 64.6         -           	2,132        783
Total Proved      	388.6     1,156    	$      26,968   $ 18,245



RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2008 AND 2007

Revenue

   We recognized total revenue of $1,877,635 for the  three  months ended March
31,  2008,  as  compared  to  $95,483  for  the same period in the prior  year.
Revenue from the sale of oil and gas for this period was $1,877,635 as compared
to  $95,483 for the same period in the prior year.  The increase  in revenue is
due to our acquisition of additional oil and gas properties in the  second  and
third quarters of 2007.

General and Administrative

   General and administrative costs  totaled  $1,244,065  for  the three months
ended  March  31,  2008, as compared to $215,739 for the comparable  period  in
2007. The increase in  general  and  administrative  costs  is due to increased
spending in connection with our acquisition and development of  additional  oil
and gas properties in the second and third quarters of 2007

						-12-


<PAGE>

   We  expect  that general and administrative spending to continue to increase
in 2008 as compared to 2007, owing to

   * the further  development  of  new  production  capabilities  in properties
     acquired in 2007
   * continued  investment in the development of our infrastructure,  including
     the  implementation  of  a  Contract  Operating  Agreement  with  Sonterra
     Operating,  Inc.,  providing for Sonterra's overseeing our daily operating
     and accounting functions for our operated and non-operated properties, and
   * costs associated with  Sarbanes-Oxley  compliance  and  other requirements
     associated with being a publicly-traded company

Operating Loss from Operations

   Our operating loss from operations was $1,243,862 for the three months ended
March 31, 2008 as compared to an operating loss from continuing  operations  of
$221,262 for the comparable period in 2007. The increase in operating loss from
continuing  operations  was  primarily  the  result  of  the  increases  in our
acquisition  activities  and  the  oil  and  gas  development  functions of our
business.

   The operating loss from operations for the three months ended March 31, 2008
included  $1,084,367  of depreciation, depletion, and amortization  expense  as
compared to $70,195 in the comparable period in 2007.

   We expect our operating  loss  in  2008 to be higher than the operating loss
incurred  in  2007,  due  primarily  to  expected  increased  spending  in  our
anticipated  development,  increased infrastructure  costs  and,  to  a  lesser
extent, debt interest expense.  We  do,  however,  expect that the gross profit
from increasing revenues will partially mitigate the  impact  of  our increased
spending on our overall operating loss.

Interest Expense

   Interest  expense  for  the  period  ending  March  31,  2008 was $1,072,856
compared  to  $327,375  for the same period in 2007, an increase  of  $745,481,
primarily  due to increased  financing  to  support  increased  operations  and
acquisitions during the period.

Net loss

   During the  period  ending  March  31,  2008,  we  recorded  a  net  loss of
$3,362,344 as compared to a net loss of $535,615 in the first quarter of  2007.
Our  increase  in  net  loss is the result of increased operating costs in 2008
relative to 2007 in all areas  of  our operations, most notably in increases in
our  acquisition activities, the oil  and  gas  development  functions  of  our
business  and  interest expense Additionally, although we expect our revenue to
increase, we expect  our  net  loss for the full year of 2008 to be higher than
the  net  loss  reported  for  the  full  year  in  2007,  owing  to  increased
depreciation,  depletion,  and  amortization  expense  and  a  higher  interest
expense.

LIQUIDITY AND FINANCIAL CONDITION


   As  of March 31, 2008, our working  capital  position was $(2,912,194),  the
primary components of which were cash and cash equivalents, accounts receivable
and prepaid  expenses  offset  by accounts payable, notes payable and long term
debt, and other accrued expenses.  As of December 31, 2007, our working capital
balance was a negative $38,336, the  primary  components of which were cash and
cash equivalents, trade accounts receivable and  prepaid expenses. We expect to
continue to fund our operations from our credit facility  and new financing, if
appropriate.  We  believe  that  we  have  sufficient cash and credit  facility
availability to fund our operation through the  third  quarter  2008. Given the
need  for,  and  costs  associated with, additional exploration and development
efforts, however, the likelihood  exits  that  we  may  have  the need to raise
additional capital to satisfy our capital needs over the next twelve months

						-13-


<PAGE>

   On  December  31,  2007  The  Company had assets of $63,428,393 compared  to
$4,485,891 on December 31, 2006, an increase of $58,942,502.  The Company had a
total stockholders' equity of $31,184,407  on  December  31,  2007  compared to
$3,941,598 on December 31, 2006, an increase in equity of $27,242,809.

   Net  cash use in  operating  activities  for  the three  months ended  March
31, 2008  was  $1,026,105  as  compared  to  net  cash  provided  by  operating
activities of $27,667 for the three months ended March 31, 2007.

   Net cash  used  by investing activities for the three months ended March 31,
2008 was $2,437,134  as compared to cash used of $1,381,617 for the same period
in the prior year.

   Net cash provided by  financing  activities for the three months ended March
31, 2008 was $1,451,096 as compared to cash provided of $1,014,914 for the same
period in the prior year.

   There  were  no cash flows from discontinued  operations  during  the  three
months of 2008 or 2007.


COMMITMENTS AND CONTINGENCIES

Contract Operating Agreement

   On April 9, 2008,  we  signed a definitive Contract Operating Agreement with
Sonterra Operating, Inc.  As  of  the  effective  date, April 1, 2008, Sonterra
began  overseeing daily operations, in our name, on  behalf  of,  and  for  our
benefit,  with  respect  to both operating services and accounting services for
our operated and non-operated properties as an independent contractor acting in
the role of contract operator.   The  initial  contact term was set at 90 days,
with  a month-to-month extension as approved by both  parties,  going  forward.
Compensation  for services rendered under Contract Operating Agreement has been
set at $75,000  per  month,  which  is  competitive with industry standards for
similar services provided by third party  contact  operators.   Sonterra senior
management has experience providing similar services at predecessor  companies.
Under the terms of the agreement, we will continue to lead the operation of our
Colorado assets with the assistance of the existing Colorado contract operator.

Hedge Agreements

   On  February  19,  2008  we  announced  2008 risk management activities with
respect  to  the  entry  into  hedge  contracts with  MF  Global  Ltd.   Hedged
production benchmark volumes were initially  set  at  16,000 barrels of oil per
month, current net production.  The underlying risk management agreement, which
has  an  initial  term  ending  December  31,  2008,  was intended  to  deliver
predictable  cash  flow for 2008, by using hedge transaction  contacts  with  a
"collar" floor price  of  $85  per barrel and a ceiling of $100 per barrel.  On
April 30, 2008, the parties agreed  in  principle  to amend the risk management
agreement to extend the term for an additional year  and  reduce  the benchmark
volumes  by half to 8,000 barrels per month (approximately 263 barrels  of  oil
per day) and to raise the collar ceiling to $109.75 per barrel for the calendar
year 2009.   MF  Global  Ltd.,  the  counterparty  to our hedge positions, is a
broker  of  exchange-listed  futures  and  options and provides  execution  and
clearing services for exchange-traded and over-the-counter  derivative products
as well as for non-derivative foreign exchange products and securities  in  the
cash  market.   MF  Global  is  rated  A3/BBB+/BBB+  by Moody's, S&P and Fitch,
respectively.   As  a  result  of  the  collar ceiling, we currently  have  not
benefited from the price of oil exceeding  $100.00  per  barrel,  since  we are
obligated  to  pay  a call on the hedge contracts representing the differential
between the average monthly  price  per  barrel  of oil in excess of the collar
ceiling, based upon the stated benchmark production of 8,000 barrels per month.

Lawsuit Settlement

On May 15, 2008,  we  settled a lawsuit  and  counter  lawsuit  between  Leexus
Oil & Gas, LLP, Mark Jaehne, and Bennie Jaehne regarding disputes arising under
a previously reported Agreement and Plan of Merger,  which Merger Agreement was
executed by the parties on April 20, 2007.  The Merger Agreement called for our
payment of $4,000,000 over time based upon a percentage  of  the  production of
certain  oil and gas interests acquired by us under the Merger Agreement,  plus
the issuance  of 1,333,333 of our common stock to the Jaehnes at closing.  With
this settlement, we have no lawsuits or claims pending by or against us arising
out of the Merger Agreement.

The settlement  provides  for  our  payment at closing of $2,000,000 and future
payments of $2,000,000 payable in 4 equal  installments  every  6 months, which
will  extinguish  all  of our past, current and future obligations due  to  the
Jaehnes, as selling shareholders under the Merger Agreement, including, without
limitation, their collective  2/3rds  share  of  $4,000  000 million additional
consideration  payable  out of future production of the acquired  oil  and  gas
interests.  The settlement  also  provides  for the repurchase our common stock
issued to Mark Jaehne and Bennie Jaehne, now  and  in  the future, all of which
will  be  based  upon  and  coincident  with  the settlement agreement  payment
schedule  of  the  up front and scheduled payments  of  the  $4,000,000  Merger
Agreement consideration.   We  will  not  be  obligated  to  pay any additional
amounts  for  the  repurchase  of  these shares of common stock.  In  addition,
certain title curative instruments to be filed of public record will cure title
disputes between the parties that had been asserted in the lawsuits.

In  addition  to  resolving claims arising  under  the  Merger  Agreement,  the
settlement agreement  fully  and  finally  resolves all disputes between us and
Leexus Oil & Gas, LLP, arising outside of the  scope  of  the  Merger Agreement
with respect to operations performed on the properties acquired  in  the Merger
Agreement.   The  settlement  agreement  does not involve the repurchase of  an
additional 666,666 shares of our common stock issued to William Zeltwanger, who
was another selling shareholder under the Merger Agreement nor the acceleration
of  Mr.  Zeltwanger's proportionate 1/3 share  of  the  $4  million  additional
consideration provided under the Merger Agreement, which obligation will remain
payable under  the  applicable  terms  and  conditions of the Merger Agreement.
Neither we nor Mr. Zeltwanger asserted any claims  against  each  other  in the
lawsuits,  and  Mr.  Zeltwanger  remains  as our Vice President, as well as the
owner  of  666,666  shares issued to him as the  third  of  the  three  selling
shareholders under the Merger Agreement.

						-14-


<PAGE>

Capital Commitment

   On February 15, 2008, we entered into an "Amendment  to  Gas  Contract dated
October  1,  2007"  with  DCP  Midstream,  for  the  gathering, processing  and
marketing of our Bastrop Field natural gas volumes.  The  contract allows us to
sell, our natural gas in Bastrop County, Texas at a premium  to  NYMEX  natural
gas  prices due to the high propane, ethane, butane and methane content of  the
natural  gas.   According  to  the agreement, as amended, we will begin to sell
initial volumes of 150 thousand  cubic  feet  per day (Mcf/d) of natural gas to
200  Mcf/d, prior to July 31, 2008.  As part of  the  contract  terms,  we  are
responsible  for  $186,000 of capital investment in the project, as needed, for
which it will receive a repayment of $0.25/Mcf over time if 220,000 MMcf of gas
is produced within  two  years  of  first  sales.   There are no minimum volume
commitments and, as gas volumes increase, the infrastructure  will  be improved
to meet the field's throughput requirements.

Future Development

   We  have  made  no  material commitments for future projects.  Each drilling
and/or rework project is  funded  on a standalone basis and, although we are in
constant  discussion  with  prospective   working  interest  partners  on  each
potential  project, commitments for the actual  drilling  or  rework  and  site
preparation operations are not made for each project until we have received the
funds from our  working  interest partners and the funds for its portion of the
working interest are committed.   The  leases  that we hold are either in their
primary term, as may be extended or renewed by the payment of certain extension
or renewal payments, or "held by production".  If  the  leased  property  has a
producing  well  that  is  providing royalty payments to the leaseholders, then
annual lease payments and renewals  are  not required.  We strive to accomplish
the drilling or rework planned for each property  within the year first leased.
If  that  does  not occur however, management reviews  the  potential  of  each
property as its leases  come up for renewal and makes a decision whether or not
to renew each lease in light of our business planning at that time.


RECENT ACCOUNTING STANDARDS

   In September 2006, FASB  issued  Statement of Financial Accounting Standards
(SFAS) No. 157, Fair Value Measurements.   SFAS  No.  157 provides guidance for
using fair value to measure assets and liabilities.  It  applies whenever other
standards require or permit assets or liabilities to be measured  at fair value
but  it  does  not  expand the use of fair value in any new circumstances.   In
November 2007, the effective date was deferred for all non-financial assets and
liabilities, except those  that  are recognized or disclosed at fair value on a
recurring basis.  The provisions of  SFAS  No.  157  that were not deferred are
effective  for  financial  statements issued for fiscal years  beginning  after
November 15, 2007.  The adoption  of  SFAS  No. 157, effective January 1, 2008,
did  not  have  a  significant effect on the Company's  financial  position  or
results of operations

   In February 2007,  FASB  issued  SFAS  No.  159,  The  Fair Value Option for
Financial  Assets  and  Financial  Liabilities-Including an Amendment  of  FASB
Statement No. 115.  SFAS No. 159 permits  an  entity  to choose to measure many
financial instruments and certain other items at fair value.   The  fair  value
option  established  by  SFAS No. 159 permits all entities to choose to measure
eligible items at fair value at specified election dates.  Unrealized gains and
losses on items for which  the  fair  value  option  has been elected are to be
recognized  in earnings at each subsequent reporting date.   SFAS  No.  159  is
effective for  financial  statements  issued  for  fiscal years beginning after
November 15, 2007.  The adoption of SFAS No. 159, effective  January  1,  2008,
did  not  have  a  significant  effect  on  the Company's financial position or
results of operations

						-15-


<PAGE>

   In  December  2007,  FASB  issued SFAS 160, "Non  controlling  Interests  in
Consolidated Financial Statements  -an amendment of ARB No. 51," to improve the
relevance,  comparability, and transparency  of  the  financial  information  a
reporting entity  provides  in its consolidated financial statements.  SFAS 160
amends  ARB  51  to  establish  accounting  and  reporting  standards  for  non
controlling  interests  in subsidiaries   and  to  make  certain  consolidation
procedures consistent with  the  requirements  of  SFAS 141R.  It defines a non
controlling  interest  in  a  Subsidiary  as  an  ownership   interest  in  the
consolidated  entity  that  should  be  reported  as equity in the consolidated
financial  statements.   SFAS  160  changes  the  way the  consolidated  income
statement is presented by requiring consolidated net  income to include amounts
attributable  to  the  parent  and  the  noncontrolling  interest.    SFAS  160
establishes a single method of accounting for changes in a  parent's  ownership
interest  in  a subsidiary which does not result in deconsolidation.  SFAS  160
also  requires expanded  disclosures  that  clearly  identify  and  distinguish
between  the  interests  of the parent and the interests of the non controlling
owners of a subsidiary.  SFAS  160 is effective for financial statements issued
for fiscal years beginning on or  after  December 15, 2008, and interim periods
within those fiscal years.  Early adoption  is  prohibited.  SFAS  160 shall be
applied  prospectively,  with  the exception of the presentation and disclosure
requirements which shall be applied  retrospectively for all periods presented.
The  Company does not believe that the  adoption  of  SFAS  160  would  have  a
material  effect  on its consolidated financial position, results of operations
or cash flows.

   In December 2007,  SFAS  No. 141R, Business Combinations, was issued.  Under
SFAS  No.  141R,  a  company is required  to  recognize  the  assets  acquired,
liabilities   assumed,   contractual    contingencies,   and   any   contingent
consideration measured at their fair value at the acquisition date.  It further
requires  that  research  and  development  assets   acquired   in  a  business
combination  that  have  no  alternative  future  use  to be measured at  their
acquisition-date fair value and then immediately charged  to  expense, and that
acquisition-related costs are to be recognized separately from  the acquisition
and  expensed  as  incurred. Among other changes, this statement also  requires
that "negative goodwill"  be  recognized  in earnings as a gain attributable to
the  acquisition,  and  any  deferred  tax benefits  resultant  in  a  business
combination are recognized in income from  continuing  operations in the period
of the combination.  SFAS No. 141R is effective for business  combinations  for
which  the  acquisition  date  is on or after the beginning of the first annual
reporting period beginning after  December  15,  2008.   The effect of adopting
SFAS  No.  141R  is  not  expected to have a significant effect  the  Company's
financial position or results of operations


ITEM 4T. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

    We maintain disclosure  controls  and  procedures  designed  to ensure that
information  required  to  be  disclosed  in reports filed under the Securities
Exchange Act of 1934 ("Exchange Act") is recorded,  processed,  summarized  and
reported within the specified time periods. Our Chief Executive Officer and our
Principal  Accounting  and  Financial  Officer  (collectively,  the "Certifying
Officers")  are  responsible  for  maintaining  our  disclosure  controls   and
procedures.  The  controls  and  procedures  established  by us are designed to
provide reasonable assurance that information required to be  disclosed  by the
issuer  in  the  reports  that  it  files  or submits under the Exchange Act is
recorded, processed, summarized and reported  within the time periods specified
in the Commission's rules and forms.

    As  required  by  Rule  13a-15  under  the Exchange  Act,  our  management,
including,  our Chief Executive Officer, evaluated  the  effectiveness  of  the
design and operation  of our disclosure controls and procedures as of March 31,
2008. Based on that evaluation, management concluded that as of March 31, 2008,
and as of the date that  the  evaluation of the effectiveness of our disclosure
controls and procedures was completed,  our  disclosure controls and procedures
were not effective to satisfy the objectives for which they are intended.

Internal Controls Over Financial Reporting

Management's Report on Internal Control over Financial Reporting.

   Section 404 of the Sarbanes-Oxley Act of 2002  requires  that our management
document and test our internal control over financial reporting  and include in
this  Annual Report on Form 10-KSB a report on management's assessment  of  the
effectiveness  of  our  internal  control  over  financial  reporting,  and  to
delineate  any  material weakness in our internal control.  A material weakness
is a deficiency,  or  a  combination  of deficiencies, in internal control over
financial  reporting,  such  that there is  a  reasonable  possibility  that  a
material misstatement of our annual or interim financial statements will not be
prevented or detected on a timely basis.

   Our management is responsible  for  establishing  and  maintaining  adequate
internal control over financial reporting, as such term is defined in Rule 13a-
15(f) of the Exchange Act. Under the supervision and with the participation  of
our  management,  including  our  Chief  Executive  Officer,  we  conducted  an
evaluation  of  the  effectiveness  of  our  internal  control  over  financial
reporting  based  upon  the  framework in Internal Control-Integrated Framework
issued by the Committee of Sponsoring  Organizations of the Treadway Commission
(COSO). Based on that evaluation, our management  concluded  that  our internal
control  over  financial reporting is not effective, as of March 31, 2008.   In
that regard, we  identified  the  certain   material weaknesses in our internal
control over financial reporting as of December  31,  2007 that are detailed on
our Form 10-KSB for the year ended December 31, 2007, filed  with  the  SEC  on
April 15, 2008.


						-16-


<PAGE>

Changes to Internal controls

   The  following  changes have occurred in our internal control over financial
reporting for the period  covered  by  this  report  that have affected, or are
reasonably likely to affect, our internal control over financial reporting:

   Independent Directors. Each of our new Chairman and  three  new directors is
an  "independent  director", as defined in Rule 4200(a)(15) of the  Marketplace
Rules of the NASDAQ  Stock  Market. The three new directors were elected by the
existing Board on August 27,  2007,  and  the new Chairman on January 22, 2008,
through an expansion of the number of the Company's directors.  The Chairman of
the full Board will serve as Lead Independent  Director  for  such  term as the
independent directors may determine.

   Committees  of  the  Board. The Board has established an Audit Committee,  a
Compensation Committee and  a Nominating and Corporate Governance Committee, to
devote  attention  to  specific   charter  subjects.  The  functions  of  these
committees were determined in August  2007.  The  Committees  did  not hold any
meetings during 2007.  The Board established an Executive Committee on February
4, 2008.

   Conflicts  of  Interest.  The  Board has established a Conflicts of Interest
policy, which effectively addresses  the  identification  of  and  process  for
conflicts  prohibition  and  resolution  thereof  in  an  effective and orderly
fashion.

   Addition  of  Accounting and Executive Personnel.  We have  entered  into  a
Contract Operating  Agreement  with  Sonterra  Operating,  Inc., an oil and gas
production  company,  to  retain  certain of its executive level  personnel  to
assist  us  in  our  day  to day business  functions  in  both  operations  and
accounting.  The key retainees  include personnel functioning at the equivalent
level of chief executive officer,  chief  financial officer and chief operating
officer.

   Effective Control in Certain Accounting  Areas.   In connection with our new
Contact  Operating  Agreement,  we are implementing appropriate  controls  over
documentation  of  accounting protocols  and  separation  of  responsibilities,
including payables,  cash  utilization,  account  structures and general ledger
journal  entries.  We  are improving our financial reporting  controls  by  (i)
establishing a procedure  for  changing  account structures and restrict system
access accordingly, (ii) implementing a process  to  review all journal entries
prior  to entry into the General Ledger, (iii) documenting  all  key  financial
reporting  processes,  and  (iv) establishing an effective document control and
retention procedure

   Effective Control in Certain  Operational Areas.  In connection with our new
Contact Operating Agreement, we are  implementing (i) appropriate controls over
documentation of operating protocols,  including  guidelines  for authorization
levels  for  entering  into  agreements,  such  as  oil  and gas leases,  joint
operating  agreements,  orders,  non-disclosure  agreements,  sales  and  other
contracts and (ii) a monitoring process to insure that all leases  and material
contracts  are  documented  appropriately  and represent the transfer of  valid
leasehold rights prior to execution.

   Documentation   of   Equity  Transactions.   With   anticipated   additional
management resources, in  addition to our retention of outsourced legal counsel
on a consultant basis to perform  those  duties  traditionally  performed by in
house  General  Counsel,  we  have  commenced  the  preparation  of an internal
centralized  reporting  system  to record changes in our issued and outstanding
securities or our equity that is  beneficially owned, in addition to short term
periodic  equity  roll-forward record  and  companion  fully  diluted  analysis
reports.  This legal  counsel  also  serves  as our liaison with our Registered
Transfer Agent.


						-17-


<PAGE>

   Segregation  of  Authority and Duties.  We have  taken  steps  to  implement
appropriate internal  control at the highest executive and management levels of
the Company, through the segregation of authority and duties, as follows:

    * Each of our new Chairman  and  three  new  directors  is  an "independent
      director", as defined in Rule 4200(a)(15) of the Marketplace Rules of the
      NASDAQ Stock Market. The three new directors were elected by the existing
      Board  on  August  27,  2007  and  the new Chairman on January 22,  2008,
      through an expansion of the number of the Company's directors.

    * We  have  entered  into  a Contact  Operating  Agreement  with   Sonterra
      Operating Inc., an oil and  gas  production company, to retain certain of
      its executive level personnel  to  assist us in the operation of our  day
      to day business.  The key retainees  include  personnel  at the  level of
      chief  executive  officer,  chief  financial officer and chief  operating
      officer

    * The  positions of Company Chairman  and  Chief Executive Officer are held
      by separate persons.

    * All material  acquisitions and contracts are  monitored  and  approved by
      the Executive committee of the Company's Board of Directors.

    * The  Board,  made   up  of a majority if independent  directors, has  the
      responsibility to  oversee  and  implement the Company's new Conflicts of
      Interest Policy

   We believe that additional efforts detailed  in our form 10-KSB for the year
ended December 31, 2007, when fully implemented in  combination  with the above
stated  changes,  will  enable us to improve further our internal control  over
financial reporting to establish  controls and procedures that are effective in
design and operation, as defined in Rules 13a-15(e) and 15d-15(e).


                          PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

   We   were   the   Plaintiff   in  a  lawsuit  filed  Harris  County,   Texas
against Leexus LLP, Mr. Mark Jaehne and Mr. Bennie Jaehne for failing to adhere
to  the  terms of the Leexus Merger Agreement signed in April 2007.  Defendants
in this action  have brought subsequent separate counter-complaints in both Lee
and Bastrop County,  Texas,  against us for its alleged failure to make certain
payments under the Merger Agreement.  The parties in the actions have agreed in
writing to settle the lawsuits and all appropriate  settlement  documents  have
been executed.  See Note 6(g) for a description of the settlement terms.

   To the knowledge  of  management,  no  federal,  state or local governmental
agency is presently contemplating any proceeding against us.

   None of our directors, executive officers or nominees  for  such office have
been involved in any legal proceedings related to bankruptcy of an entity where
they held such positions; nor charged or convicted in any criminal proceedings;
nor  subject  to  any  order,  judgment,  or  decree permanently or temporarily
enjoining, barring, suspending or otherwise limiting  their  involvement in any
type  of business, securities or banking activities; nor found  in  any  manner
whatsoever to have violated a federal or state securities or commodities law.

						-18-


<PAGE>

  None  of  our officers or directors, nor to our knowledge, any of our control
persons, has:

   * had any bankruptcy petition filed by or against any business of which such
     person was  a  general  partner or executive officer either at the time of
     the bankruptcy or within two years prior to that time;

   * been  convicted in a criminal  proceeding  or  is  subject  to  a  pending
     criminal   proceeding   (excluding  traffic  violations  and  other  minor
     offenses);

   * been subject to any order, judgment, or decree, not subsequently reversed,
     suspended or vacated, of  any court of competent jurisdiction, permanently
     or  temporarily enjoining,  barring,  suspending or otherwise limiting his
     involvement in any type of business, securities or banking activities; or

   * been  found by a court of competent jurisdiction  (in a civil action), the
     Securities  and  Exchange  Commission  or  the Commodity  Futures  Trading
     Commission to have violated a federal or state  securities  or commodities
     law, where the judgment has not been reversed, suspended or vacated.

ITEM 6. EXHIBITS

<TABLE>
<CAPTION>
<S>	<C>	<C>

EXHIBITS                                                                                          REFERENCE

31.1       Principal Executive Officer Certification Pursuant to Item 601(b)(31)
	   of  Regulation  S-K,  as  adopted pursuant to Section 302 of the
	   Sarbanes-Oxley Act of 2002								Filed Herewith

32.1       Principal Executive Officer Certification Pursuant to Item  601(b)(32)  of
           Regulation  S-K,  as adopted pursuant to Section 906 of the Sarbanes-Oxley
	   Act of 2002										Filed Herewith

</TABLE>




SIGNATURES

       Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant  caused this report to be signed on its behalf  by  the  undersigned
thereunto duly authorized.


                  SOUTH TEXAS OIL COMPANY


Date: May 20, 2008	By:   /s/  J. Scott Zimmerman
			      -----------------------
                              J. Scott Zimmerman
                              Principal Executive Officer &
                              Principal Financial Officer


						-19-


<PAGE>