<PAGE>
                    U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

(Mark One)
[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
     1934

     For the fiscal year ended December 31, 2006

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
     OF 1934

     For the transition period from ___________ to ___________

                         Commission file number: 0-50732

                          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.)

  2802 Flintrock Trace, Suite 252, Austin, TX                78738
  -------------------------------------------              ----------
  (Address of principal executive offices)                 (Zip Code)

                 (512)371-4152 (Telephone) (512)263-5046 (Fax)
                  -------------------------------------------
                          (Issuer's telephone number)

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act:

                          Common Stock, par value $.001
                          -----------------------------
                                (Title of class)

      Check  whether  the  issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange  Act during the past 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. Yes [X] No [
]

     Check if there is no disclosure of delinquent  filers  in response to Item
405 of Regulation S-B contained herein, and no disclosure will be contained, to
the  best  of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by reference in Part III of this Form 10-KSB  or  any
amendment to this Form 10-KSB. [X]

     The issuer had revenues of $640,193 for the fiscal year ended December 31,
2006.

      Based on the average  of the closing bid and asked prices of the issuer's
common stock on December 31,  2006,  the  aggregate  market value of the voting
stock held by non-affiliates of the registrant on that date was $87,823,693.

      As of April 10, 2007, the issuer had 13,513,841 shares  of  common  stock
outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

None

     Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]




                                       2
<PAGE>

                               TABLE OF CONTENTS

                                                                       Page No.

                                     PART I

Item 1.       Description of Business....................................     6

Item 2.       Description of Properties..................................    16

Item 3.       Legal Proceedings..........................................    23

Item 4.       Submission of Matters to a Vote of Security Holders........    23

                                     PART II

Item 5.       Market for Common Equity and Related Stockholder Matters ..    23

Item 6.       Management's Discussion and Analysis of Financial
              Condition or Plan of Operation.............................    26

Item 7.       Financial Statements.......................................   F-1

Item 8.       Changes in and Disagreements with Accountants
              on Accounting and Financial Disclosure.....................    33

Item 8A.      Controls and Procedures....................................    33

Item 8B.      Other Information..........................................    34


                                    PART III

Item 9.       Directors and Executive Officers of the Registrant.........    34

Item 10.      Executive Compensation.....................................    37

Item 11.      Security Ownership of Certain Beneficial Owners
              and Management and Related Stockholder Matters.............    39

Item 12.      Certain Relationships and Related Transactions.............    40

Item 13.      Exhibits and Reports on Form 8-K...........................    42

Item 14.      Principal Accountant Fees and Services.....................    44

Signatures    ...........................................................    45











                                       3
<PAGE>
                                     PART I

Forward-Looking Statements

     References in this annual report to "the Company," "we," "us" or "our" are
intended  to  refer  to  South Texas Oil Company. This report contains numerous
"forward-looking statements"  that involve substantial risks and uncertainties.
These include, without limitation,  statements  relating to future drilling and
completion of wells, well operations, production,  prices,  costs and expenses,
cash flow, investments, business strategies and other plans and  objectives  of
our  management  for  future  operations  and activities and other such matters
including, but not limited to:

-    Failure to obtain, or a decline in, oil production, or a decline in oil or
     gas   prices,
-    Incorporate estimates of required capital expenditures,
-    Increase in the cost of drilling, completion and oil production or other
     costs of production and operations,
-    An inability to meet growth projections, and
-    Other risk factors set forth under "Risk Factors" in this annual report.
     In addition, the words "believe", "may", "could", "when", "estimate",
     "continue", "anticipate", "intend", "expect", and similar expressions, as
     they relate to the South Texas Oil Company, our business or our
     management, are intended to identify forward-looking statements.

     These statements are based on our beliefs and the assurances we made using
information currently available to us. Because  these  statements  reflect  our
current  views  concerning  future  events,  these  statements  involve  risks,
uncertainties and assumptions. Our actual results could differ materially  from
the results discussed in the forward-looking statements. Some, but not all,  of
the  factors  that  may  cause  these differences include those discussed below
under the section entitled "Risk Factors" in this annual report. You should not
place  undue  reliance on these forward-looking  statements.  You  should  also
remember that these  statements are made only as of the date of this report and
future events may cause them to be less likely to prove to be true.

Glossary of Terms

      CONDENSATE refers  to  hydrocarbons associated with natural gas which are
liquid under surface conditions but gaseous in a reservoir before extraction.

      DEPLETION is the reduction in petroleum reserves due to production.

      FORMATION is a reference  to  a  group of rocks of the same age extending
over a substantial area of a basin.

      HYDROCARBONS  is the general term for  oil,  gas,  condensate  and  other
petroleum products.

      PARTICIPATION  INTEREST   or  WORKING  INTEREST  is  an  equity  interest
(compared with a royalty interest)  in  an  oil  and  gas  property whereby the
participating  interest  holder  pays  its  proportionate percentage  share  of
development  and  operating costs and receives  the  equivalent  share  of  the
proceeds of hydrocarbon  sales  after  deduction  of royalties due on the gross
income.

      PROSPECT  is a potential hydrocarbon trap which  has  been  confirmed  by
geological  and  geophysical   studies  to  the  degree  that  drilling  of  an
exploration well is warranted.

                                       4
<PAGE>

      PROVED RESERVES of crude oil,  natural  gas,  or  natural gas liquids are
estimated  quantities  that  geological and engineering data  demonstrate  with
reasonable certainty to be recoverable  in  future  years from known reservoirs
under existing economic and operating conditions, i.e.,  prices and costs as of
the  date  the estimate is made.  Prices include consideration  of  changes  in
existing  prices   provided  only  by  contractual  arrangements,  but  not  on
escalations based upon future conditions.

      Reservoirs are  considered  proved if economic producibility is supported
by either actual production or conclusive  formation  tests or if core analysis
and/or log interpretation demonstrates economic producibility  with  reasonable
certainty.   The   area   of  a  reservoir  considered proved includes (1) that
portion delineated by drilling and defined by  fluid  contacts, if any, and (2)
the  immediately  adjoining  portions not yet drilled that  can  be  reasonably
judged as economically productive  on  the  basis  of  available geological and
engineering data. In the absence of data on fluid contacts,  the  lowest  known
structural  occurrence  of  hydrocarbons controls the lower proved limit of the
reservoir.  Proved reserves are  estimates of hydrocarbons to be recovered from
a given data forward. They are expected  to  be  revised  as  hydrocarbons  are
produced and additional data become available.

      Reserves  that  can  produced  economically  through  the  application of
established   improved   recovery   techniques   are  included  in  the  proved
classification when these qualifications are met:  (1)  successful testing by a
pilot  project,  or  the operation of an installed program in  that  reservoir,
provides support for the  engineering  analysis on which the project or program
was based, and (2) it is reasonably certain the project will proceed. Estimates
of  proved  reserves do not include the following:  (1)  oil  that  may  become
available from  known  reservoirs  but  is  classified  separately as indicated
additional reserves; (2) crude oil, natural gas, and natural  gas  liquids, the
recovery of which is subject to reasonable doubt because of uncertainty  as  to
geology, reservoir characteristics, or economic factors; (3) crude oil, natural
gas,  and  natural  gas liquids, that may occur in undrilled prospects; and (4)
crude oil, natural gas, and natural gas liquids, that may be recovered from oil
shales, coal, gilsonite  and  other  such  sources. PROVED DEVELOPED RESERVES A
subcategory of proved reserves. They are those reserves that can be expected to
be  recovered  through  existing wells with existing  equipment  and  operating
methods. Additional oil and  gas expected to be obtained through application of
fluid injection or other improved  recovery  techniques  for  supplementing the
natural forces and mechanisms of primary recovery are considered developed only
after testing by a pilot project or after the operation of an installed program
has  confirmed  through  production  response that increased recovery  will  be
achieved.

      PROVED UNDEVELOPED RESERVES is a subcategory of proved reserves. They are
reserves that are expected to be recovered from new wells on undrilled acreage,
or from existing wells where a relatively  major  expenditure  is  required for
recompletion. Reserves on undrilled acreage are limited to those drilling units
offsetting  productive  units  that  are reasonably certain of production  when
drilled. Proved reserves for other undrilled  units  are  claimed only where it
can be demonstrated with certainty that there is continuity  of production from
the  existing  productive formation. Estimates for proved undeveloped  reserves
are not attributable to any acreage for which an application of fluid injection
or other improved  recovery  technique  is contemplated, unless such techniques
have  been  proved effective by actual tests  in  the  area  and  in  the  same
reservoir.

      RESERVOIR is a porous and permeable sedimentary rock formation containing
adequate pore space in the rock to provide storage space for oil, gas or water.


                                       5
<PAGE>
      TRAP is  a geological structure in which hydrocarbons build up to form an
oil or gas field.

ITEM 1.  DESCRIPTION OF BUSINESS.

   (a) Business Development

Historical Corporate Development

      SOUTH TEXAS  OIL COMPANY, was incorporated under the laws of the State of
Texas on December 3,  1998 and was not operational until February 22, 2000.  At
inception  South  Texas Oil  Company's  Articles  of  Incorporation  Authorized
50,000,000 Common Shares  at  $.001 Par Value and 5,000,000 preferred shares at
$.001 Par Value.

      On February 22, 2000, South Texas Oil Company, issued to Nutek, Inc. (the
parent company) 4,500,000 unregistered  shares  of  its  $.001 par value common
stock  for  selected assets, at their fair market value of $1,279,896.   Nutek,
Inc. had acquired these selected assets from the Clipper Operating Company.

      On or about  May  10,  2001,  the domicile of the Corporation was changed
from Texas to Nevada and was incorporated in the State of Nevada on that date.

      On  August 1, 2001 a dividend of  approximately  509,604  shares  of  the
common stock  of  South  Texas  Oil  Company, was distributed pro rata to Nutek
Inc., shareholders on the basis of a ratio  of one (1) share of South Texas Oil
Company for each one hundred (100) issued and outstanding shares of Nutek, Inc.
held.

      On September 17, 2002, South Texas Oil  Company  began trading its Common
Shares on the Pink Sheets Electronic Quotation Service, under the symbol NUTO.

      On January 8, 2004 the parent Company distributed  a  further dividend of
shares of the common stock of South Texas Oil Company.  This  distribution  was
distributed pro rata to Nutek Inc., shareholders on the basis of a ratio of one
(1)  share  of  South  Texas Oil Company for each five hundred (500) issued and
outstanding shares of Nutek, Inc. held.

      The dividend was in  the  form  of  a  dividend  certificate representing
restricted common stock, and was distributed to the parent Company's beneficial
stockholders of record as of the record date, which was January 8, 2004.

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

   (b) Business of Issuer

   The Company.

      South  Texas  Oil  Company  was formed for the purpose of development and
operation of oil and gas properties  with  proven  reserves.  South  Texas  Oil
Company's  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 the larger reserves. South Texas  Oil  Company's  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.

      However, marginal wells frequently have  production costs that are higher
than the revenue from hydrocarbons produced which would have a material adverse
affect on earnings.  See Item 1 (c) Risk Factors  Relating  to the Oil Industry
and Our Business.
                                       6
<PAGE>

      South  Texas  Oil  Company's  primary operational strategy  includes  the
operation of its own projects, giving  it substantial control over drilling and
production costs.

General Discussion of Operations

From inception in 1998, South Texas Oil Company had no operations until it
acquired its interests in producing oil wells in 2000. On April 1, 2005,  South
Texas  Oil  purchased an additional 44 oil wells, increasing the total number
of wells South  Texas  Oil Company  had  interest in to 135 and total gross
acres under lease to 5,243.685 acres.

      South  Texas Oil Company currently  has  five  full  time  employees  and
contracts the  services  of consultants and contractors in the various areas of
expertise as required.

The way in which the business currently operates is as follows:

      Most  of the engineering  and  geology  for  South  Texas  Oil  Company's
projects is performed  by  consulting  firms, while 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.

       South Texas Oil Company's Chief Operating Officer,  Mr.  Edward  Shaw is
responsible  for  all  day  to  day  field operations.  This includes oil lease
repairs  to  electrics,  maintaining the  operation  of  the  wells,  providing
production reports to South  Texas  Oil  Company and communicating with the oil
haulers to collect production when necessary.

      Mr. Conrad Humbke, is available to advise on methods of adding production
at  lower  costs  through development drilling,  work-overs,  behind  pipe  re-
completions and secondary recovery operations.

      South Texas Oil Company's website address is http://www.southtexasoil.com

   (c) Risk Factors Relating to the Oil Industry and Our Business.

1.  South Texas Oil  Company  must  increase its oil production revenue or this
could adversely affect South Texas Oil Company's oil operations.

      South Texas Oil Company's long  term  success  is ultimately dependent on
its ability to expand its revenue base through the acquisition  and development
of   producing  properties.  South  Texas  Oil  Company  has  made  significant
investments  in  producing  properties  in  Texas.  The  acquisitions  are  not
indicative of future success.

      All  of the producing projects are subject to the risk of failure and the
loss of South  Texas  Oil  Company's  investment.  In the event South Texas Oil
Company is not able to increase the revenues  from its properties, or unable to
continue to produce oil from its properties, the leases could fall into default
and South Texas Oil Company lose its rights to those leases.

2. Prices of oil fluctuate widely based on market  conditions  and any extended
decline in oil prices may adversely affect our business, financial condition or
results   of  operation  and  our  ability  to  meet  our  capital  expenditure
obligations and financial commitments.
                                       7
<PAGE>

      South  Texas  Oil  Company's  revenues,  operating results, cash flow and
future  rate  of  growth  are very dependent upon prevailing  prices  for  oil.
Historically, oil markets have  been volatile and not predictable, and they are
likely to continue to be volatile  in  the future. The price we receive for our
oil production heavily influences our revenue, profitability, access to capital
and future rate of growth. Lower oil prices  may not only decrease our revenues
on a per unit basis but also may reduce the amount  of  oil that we can produce
economically. A substantial or extended decline in oil or  natural  gas  prices
may  materially  and adversely affect our future business, financial condition,
results  of  operations,  liquidity  or  ability  to  finance  planned  capital
expenditures.  Prices  for  oil are subject to wide fluctuations in response to
relatively  minor  changes  in  the  supply  of  and  demand  for  oil,  market
uncertainty and a variety of additional  factors  that  are beyond our control,
including:
        - political conditions in the oil producing and exporting countries;
        - the supply and price of foreign oil;
        - the level of consumer product demand;
        - the price and availability of alternative fuels;
        - the effect of federal and state regulation of production and
          transportation; and
        - the proximity of South Texas Oil Company's wells  to  pipelines  and
          their capacity.

3.  Unless we  replace  our  oil  reserves,  our  reserves  and production will
decline, which would adversely affect our cash flows and income.

      The following leases contain proved developed oil reserves:  Ann Burns A,
Jane  Burns  B,  Jane  Burns, G. Davidson, Foster, Talley, and E.  Wright.  The
following leases have not  been  attributed with proved developed reserves: Ann
Burns, Jane Burns C, Jane Burns D,  Jane Burns E, Jane Burns F, Crowther, Hill,
Rizik, Shell C, Smith et al, Tomblin,  and  Wright.  Successful development and
production  of  those  reserves  cannot  be  assured.  Additional  drilling  or
workovers will be necessary in future years both  to maintain production levels
and to define the extent and recoverability of existing  reserves.  South Texas
Oil  Company's  present  oil  wells  may not continue to produce at current  or
anticipated rates of production, development  drilling  may  not be successful,
production  of  oil  may  not commence when expected, there may be  unfavorable
markets for oil produced in the future or that prior production rates cannot be
maintained. If South Texas Oil Company is unable to develop or produce reserves
for continued production at current rates, South Texas Oil Company would become
unprofitable or cease business.

4.   Drilling  for  and producing  oil  is  a  high  risk  activity  with  many
uncertainties that could  adversely affect our business, financial condition or
results of operations.

      Our future success will  depend  on  the  success  of  our  exploitation,
exploration,  development  and  production activities. Our oil exploration  and
production  activities  are subject  to  numerous  risks  beyond  our  control,
including the risk that drilling  will  not  result  in commercially viable oil
production. Our decisions to purchase, explore, develop  or  otherwise  exploit
prospects  or properties will depend in part on the evaluation of data obtained
through geophysical  and  geological  analyses, production data and engineering
studies, the results of which are often  inconclusive  or  subject  to  varying
interpretations. Our cost of drilling, completing and operating wells is  often
uncertain  before  drilling  commences.  Overruns  in budgeted expenditures are
common  risks  that  can make a particular project uneconomical.  The  cost  of
drilling,  completing  and  operating  wells  is  often  uncertain.   Moreover,
drilling may be curtailed,  delayed  or  canceled  as a result of many factors,
including title problems, weather conditions,

                                       8
<PAGE>
(cont)
shortages  of, or delays in delivery of equipment, as  well  as  the  financial
instability of well operators, major working interest owners and well servicing
companies. South  Texas Oil Company's wells may be shut-in for lack of a market
until a pipeline or  gathering  system with available capacity is extended into
our  area.  Our  oil  wells  may have  production  curtailed  until  production
facilities and delivery arrangements  are  acquired  or developed for them. The
affect  of one or more of the above factors could result  in  South  Texas  Oil
Company becoming unprofitable or ceasing business.

5. Competition  in  the oil industry is intense, which may adversely affect our
ability to compete.

      The oil industry  is highly competitive. South Texas Oil Company competes
with others for property  acquisitions  and  for opportunities to explore or to
develop and produce oil. South Texas Oil Company  faces strong competition from
many companies and individuals with greater capital,  financial  resources  and
larger  technical staffs. South Texas Oil Company also faces strong competition
in procuring  services  from  a  limited  pool  of  laborers,  drilling service
contractors  and  equipment  vendors.  The affect of one or more of  the  above
factors  could  result  in South Texas Oil  Company  becoming  unprofitable  or
ceasing business.

6.  South Texas Oil Company  may  not  carry  sufficient insurance, which could
adversely affect our business, financial condition and future operations.

      South  Texas Oil Company and well operators  maintain  general  liability
insurance but  it  may  not  cover  all  future  claims.  If  a  large claim is
successfully asserted against South Texas Oil Company, it might not  be covered
by insurance, or it might be covered but cause South Texas Oil Company  to  pay
much   higher   insurance   premiums  or  a  large  deductible  or  co-payment.
Furthermore, regardless of the  outcome,  litigation  involving South Texas Oil
Company operations or even insurance companies disputing  coverage could divert
management's attentions and energies away from operations.  The  nature  of the
oil business involves a variety of operating hazards such as fires, explosions,
cratering,  blow-outs,  adverse weather conditions, pollution and environmental
risks, encountering formations  with  abnormal  pressures,  and,  in horizontal
wellbores,  the  increased risk of mechanical failure and collapsed holes,  the
occurrence of any  of  which  could result in substantial losses to South Texas
Oil Company.

7. Reserve estimates depend on  many  assumptions  that  may  turn  out  to  be
inaccurate.  Any material inaccuracies in these reserve estimates or underlying
assumptions will  materially  affect  the  quantities  and present value of our
reserves.

   Estimating   South   Texas   Oil  Company  proved  reserves  involves   many
uncertainties, including factors  beyond  South  Texas  Oil  Company's 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 reserves and  of  the  future  net cash flows from
them are based upon a number of variable factors and assumptions including:

   -  historical production from the properties compared with  production  from
      other producing properties;
   -  the effects of regulation by governmental agencies;
   -  future oil prices; and
   -  future  operating  costs,  severance and excise taxes, abandonment costs,
      development costs and workover and remedial costs.



                                       9
<PAGE>

8.  Governmental regulation, environmental  risks  and  taxes  could  adversely
affect South Texas Oil Company's oil operations in the state of Texas.

      South  Texas  Oil  Company's  oil  operations  in  Texas  are  subject to
regulation  by federal and state governments, including environmental laws.  To
date, South Texas  Oil  Company  has not had to expend significant resources in
order  to  satisfy environmental laws  and  regulations  presently  in  effect.
However, compliance  costs  under  any  new  laws and regulations that might be
enacted could adversely affect South Texas Oil  Company's business and increase
the  costs  of  planning,  designing,  drilling,  installing,   operating   and
abandoning  South  Texas Oil Company's oil wells.  Additional matters that are,
or have been from time to time, subject to governmental regulation include land
tenure, royalties, production  rates,  spacing,  completion  procedures,  water
injections,  utilization,  the  maximum  price at which products could be sold,
energy taxes and the discharge of materials into the environment.

      The  Registrant  is  subject to laws and  regulations  that  control  the
discharge of materials into  the  environment  require  removal  and cleanup in
certain  circumstances,  require  the  proper  handling  and disposal of  waste
materials  or  otherwise  relate  to  the  protection  of  the environment.  In
operating  and  owning petroleum interests, the Registrant may  be  liable  for
damages and the costs  of  removing  hydrocarbon  spills  for  which it is held
responsible. Laws relating to the protection of the environment  have  in  many
jurisdictions  become  more  stringent  in  recent  years  and  may, in certain
circumstances,  impose  strict liability, rendering the Registrant  liable  for
environmental damage without  regard  to negligence of fault on the part of the
Registrant. Such laws and regulations may  expose  the  Registrant to liability
for  the  conduct  of,  or  conditions  caused by, others or for  acts  of  the
Registrant that were in compliance with all  applicable  law  at  the time such
acts  were performed. The application of these requirements or the adoption  of
new requirements  could  have  a material adverse effect on the business of the
Registrant.

9.  Properties that we buy may not  produce  as projected, and we may be unable
to  identify liabilities associated with the properties  or  obtain  protection
from sellers against them.

      Our  business  strategy  includes  a  continuing acquisition program. The
successful acquisition of producing properties  requires  assessments  of  many
factors,  which  are  inherently  inexact  and may be inaccurate, including the
following:

      -  the amount of recoverable reserves;
      -  future oil prices;
      -  estimates of operating costs;
      -  estimates of future development costs;
      -  estimates of the costs and timing of plugging and abandonment; and
      -  potential environmental and other liabilities.

      Our assessment will not reveal all existing  or  potential  problems, nor
will it permit us to become familiar enough with the properties to assess fully
their capabilities and deficiencies. In the course of our due diligence, we may
not  inspect  every  well,  platform  or  pipeline.  Inspections may not reveal
structural   and  environmental  problems,  such  as  pipeline   corrosion   or
groundwater contamination,  when  they  are  made. We may not be able to obtain
contractual indemnities from the seller for liabilities that it created. We may
be required to assume the risk of the physical  condition  of the properties in
addition to the risk that the properties may not perform in accordance with our
expectations.

                                      10
<PAGE>

10.  Indemnities  may be Unenforceable or Uncollectible which  could  adversely
affect our business, financial condition and future operations.

      The operating  agreements with participants in a property provide for the
indemnification of the  Registrant as operator. Such indemnification may not be
enforceable or a participant  may  not be financially able in all circumstances
to comply with its indemnification obligations,  or  the  Registrant may not be
able to obtain such indemnification agreements in the future.  The  failure  to
obtain  enforceable  indemnification agreements or a participant's inability to
indemnify the Registrant may cause the Registrant to assume all operating costs
of a property. Such a  result  could  adversely  affect our business, financial
condition and future operations which additionally,  could cause the Registrant
to become insolvent.

11. Our Stock is considered a "Penny Stock" which could  have an adverse effect
on the trading market for South Texas Oil Company's shares.

      South Texas Oil Company's securities are classified  as  a  "penny stock"
based  upon  their  market  price and the manner in which they are traded.  The
Securities and Exchange Act of  1934 requires additional disclosure relating to
the market for "penny stocks." A  penny  stock  is  generally defined to be any
equity security not listed on NASDAQ or a national securities exchange that has
a market price of less than $5.00 per share, subject to certain exceptions.

Among these exceptions are shares issued by companies that have:

   -  net tangible assets of at least $2 million, if the  issuer  has  been  in
     continuous operation for three years;
   - net  tangible  assets  of  at  least $5 million, if the issuer has been in
     continuous operation for less than three years; or
   - average annual revenue of at least  $6  million for each of the last three
     years.

   South Texas Oil Company does not currently  meet  the  requirements of these
exceptions  and,  therefore,  the  common  shares are deemed penny  stocks  for
purposes of the Exchange Act at any time while South Texas Oil Company's common
stock trades below $5.00 per share. In such  cases,  trading in South Texas Oil
Company's shares is regulated pursuant to Rules 15-g-1 through 15-g-6 and 15-g-
9 of the Exchange Act. Under these rules, brokers or dealers  recommending  our
shares  to  prospective  buyers  would  be  required,  unless  an  exemption is
available, to:

   - deliver  a  lengthy disclosure statement in a form designated by  the  SEC
     relating to the  penny  stock market to any potential buyers, and obtain a
     written acknowledgement from each buyer that such disclosure statement has
     been received by the buyer prior to any transaction involving our shares;

   - provide detailed written  disclosure to buyers of current price quotations
     for our shares, and of any sales commissions or other compensation payable
     to any broker or dealer, or  any  other  related  person,  involved in the
     transaction;

   - send monthly statements to buyers disclosing updated price information for
     any penny stocks held in their accounts, and these monthly statements must
     include specified information on the limited market for penny stocks.

      In  addition,  as  South Texas Oil Company is subject to the penny  stock
rules, all brokers or dealers involved in a transaction in which our shares are
sold to any buyer, other than an established customer or "accredited investor,"
must make a

                                      11
<PAGE>
(cont)
special written determination  that South Texas Oil Company's shares would be a
suitable investment for the buyer,  and the brokers or dealers must receive the
buyer's written agreement to purchase  our  shares,  as  well  as  the  buyer's
written  acknowledgement  that the suitability determination made by the broker
or  dealer accurately reflects  the  buyer's  financial  situation,  investment
experience  and  investment  objectives, prior to completing any transaction in
our shares. These Exchange Act  rules  may  limit the ability or willingness of
brokers and other market participants to make  a  market  in our shares and may
limit the ability of our shareholders to sell in the secondary  market, through
brokers,  dealers or otherwise.  South Texas Oil Company also understands  that
many brokerage  firms discourage their customers from trading in shares falling
within the "penny  stock" definition due to the added regulatory and disclosure
burdens imposed by these  Exchange  Act  rules.  The  SEC from time to time may
propose and implement even more stringent regulatory or disclosure requirements
on  shares  not  listed  on  NASDAQ or on a national securities  exchange.  The
adoption of the proposed changes  that  may be made in the future could have an
adverse effect on the trading market for South Texas Oil Company's shares.

12. Dilution could have an adverse affect  on  the ownership of the stockholder
in the Registrant.

      The Registrant may issue more common shares  at  prices determined by the
board  of  directors  in  any  private placements or offerings  of  securities,
possibly resulting in dilution of  the value of common shares, and, given there
is no preemptive right to purchase common  shares,  if  a  stockholder does not
purchase  additional  common  shares,  the  percentage share ownership  of  the
stockholder in the Registrant will be reduced.

13. Defeasance of Title could adversely affect  South  Texas  Oil Company's oil
operations.

      The  possibility  exists  that  title  to one or more properties  of  the
Registrant may be lost due to an omission in the claim of title. The Registrant
does not maintain title insurance. If title to  one or more properties is lost,
this  could  adversely  affect  our business, financial  condition  and  future
operations.

14. A Limited Operating History could  adversely affect our business, financial
condition and future operations.

      South Texas Oil Company first acquired  its  interests  in  producing oil
wells  in 2000. No additional wells have been acquired. Because of the  limited
operating  history of South Texas Oil Company, stockholders and South Texas Oil
Company face a risk that future acquisitions of oil wells or development may be
unsuccessful.   South  Texas  Oil  Company would then remain unprofitable which
would adversely affect our business, financial condition and future operations.

15. Lack of Management Experience in  the  Oil and Gas Industry could adversely
affect South Texas Oil Company.

      Some members of Management and the Board  of  Directors do not have prior
experience in the oil industry. Some members do have  extensive work experience
in   geology,  land  acquisition,  leasing  properties  for  natural   resource
extraction (mining), and business management. The lack of experience in the oil
industry  may impair Management and the Directors' ability to evaluate and make
decisions involving  current  operations  of  South  Texas  Oil Company and any
future projects South Texas Oil Company may undertake in the oil industry. Such
impairment  and  lack  of  experience  could  adversely  affect  our  business,
financial condition and future operations.
                                      12
<PAGE>

16.  Amount  of Time Officers Can Devote to South Texas Oil Company  Operations
could have a material adverse affect on South Texas Oil Company.

      Mr. Conradie, our President and Chief Executive Officer and Mr. Shaw, our
Chief Operational Officer currently devote 100% of their time to the operations
and demands of  South  Texas  Oil  Company.   If two or more of the officers of
South  Texas  Oil  Company  could not perform the duties  and  responsibilities
necessary for the success and  development  of  South  Texas  Oil Company, this
could have a material adverse affect on our business, financial  condition  and
both current and future operations.

   Environmental and Government Compliance and Costs.

      All  oil  and  gas  operations  are  subject  to  extensive environmental
permitting and governmental regulation. All drilling and  rework operations are
subject  to  inspection  by local, state and federal regulators.  Violation  of
these requirements or environmentally  damaging spills or accidents due to non-
compliance in these areas can result in fines and, depending on the severity of
the negligence, criminal prosecution. South  Texas Oil Company is not currently
a   party  to  any  judicial  or  administrative  proceedings   which   involve
environmental regulations or requirements and management believes that it is in
substantial compliance with all applicable environmental regulations.

GOVERNMENTAL REGULATION

       GENERAL.  South Texas Oil Company is subject to federal, state and local
laws and regulations  governing environmental quality and pollution control. It
is  anticipated  that,  absent   the  occurrence  of  an  extraordinary  event,
compliance with existing federal,  state  and local laws, rules and regulations
concerning the protection of the environment  and  human health will not have a
material  effect  upon  South  Texas  Oil  Company,  capital  expenditures,  or
earnings.   South  Texas  Oil  Company  cannot predict what  effect  additional
regulation  or  legislation, enforcement policies  thereunder  and  claims  for
damages for injuries  to property, employees, other persons and the environment
resulting from South Texas  Oil Company's operations. South Texas Oil Company's
operations related to the exploration,  development  and  production of oil and
natural  gas  are subject to stringent environmental regulation  by  state  and
federal authorities including the Environmental Protection Agency ("EPA"). This
regulation has  increased  the cost of planning, designing, drilling, operating
and in some instances, abandoning  wells.  In  most  instances,  the regulatory
requirements  relate  to  the  handling and disposal of drilling and production
waste products and waste created by water and air pollution control procedures.
Although South Texas Oil Company  believes  that  compliance with environmental
regulations  will  not  have a material adverse effect  on  its  operations  or
results of these operations,  risks  of  substantial  costs and liabilities are
inherent  in  oil  and  gas  operations,  and  there can be no  assurance  that
significant costs and liabilities, including criminal  penalties,  will  not be
incurred.  Moreover, it is possible that other developments, including stricter
environmental  laws  and  regulations,  and  claims for damages for injuries to
property or persons resulting from South Texas  Oil  Company  activities  could
result in substantial costs and liabilities.

       EXPLORATION  AND  PRODUCTION.  South  Texas Oil Company's operations are
subject to various types of regulation at the  federal, state and local levels.
Such  regulation  includes  requiring  permits  for  the   drilling  of  wells,
maintaining  bonding  requirements  in  order  to  drill or operate  wells  and
regulating the location of wells, the method of drilling  and casing wells, the
surface  use and restoration of properties upon which wells  are  drilled,  the
plugging and abandoning of wells

                                      13
<PAGE>
(cont)
and the disposal  of  fluids  used  or  obtained in connection with operations.
South Texas Oil Company is also subject to  various  conservation  regulations.
These include the regulation of the size of drilling and spacing units  and the
density of wells which may be drilled and the unitization or pooling of oil and
gas  properties.   In addition, state conservation laws establish maximum rates
of production from oil and gas wells, generally prohibit the venting or flaring
of gas and impose certain  requirements regarding the ratability of production.
These regulations limit the  amount  of  oil  and  gas that can be produce from
wells and to limit the number of wells or the locations  at  which wells can be
drill.

      WASTE DISPOSAL. South Texas Oil Company currently owns or leases, and has
in the past owned or leased, numerous properties that for many  years have been
used  for  the  exploration  and  production  of oil. Although South Texas  Oil
Company has utilized operating and disposal practices that were standard in the
industry at the time, hydrocarbons or other wastes may have been disposed of or
released on or under the properties owned or leased  by South Texas Oil Company
or on or under other locations where these wastes have been taken for disposal.
State and federal laws applicable to oil and natural gas  wastes and properties
have gradually become stricter. Under these laws, South Texas Oil Company could
be required to remove or remediate previously disposed wastes (including wastes
disposed of or released by prior owners or operators) or property contamination
(including   groundwater   contamination)  or  to  perform  remedial   plugging
operations  to  prevent  future   contamination.   South  Texas  Oil  Company's
operations and activities may generate wastes, including hazardous wastes, that
are subject to the federal Resource Conservation and  Recovery Act ("RCRA") and
comparable state statutes. The EPA and applicable state  agencies  have limited
the  disposal  options  for  certain hazardous and nonhazardous wastes and  are
considering  the  adoption  of stricter  disposal  standards  for  nonhazardous
wastes. Furthermore, certain  wastes  that  may  be  generated  by  the oil and
natural  gas  operations  that are currently exempt from treatment as hazardous
wastes may in the future be  designated  as  hazardous wastes, and therefore be
subject  to  considerably  more  rigorous  and costly  operating  and  disposal
requirements.

       SUPERFUND. The Comprehensive Environmental  Response,  Compensation  and
Liability Act ("CERCLA"), also known as the "Superfund" law, imposes liability,
without  regard  to  fault  or the legality of the original conduct, on certain
classes of persons with respect  to the release of a "hazardous substance" into
the environment. These persons include  the  owner  and  operator  of  a  site,
persons  that  disposed  of  or  arranged  for  the  disposal  of the hazardous
substances found at a site, and prior owners and operators of the  site. CERCLA
also  authorizes  the EPA and, in some cases, third parties to take actions  in
response to threats  to  the  public  health  or the environment and to seek to
recover from responsible classes of persons the  costs  of  such action. In the
course of operations, South Texas Oil Company's operations and  activities  may
generate wastes that fall within CERCLA's definition of "hazardous substances."
South  Texas Oil Company may be responsible under CERCLA for all or part of the
costs to  clean  up  sites  at  which  such wastes have been released. To date,
however,  neither  South  Texas  Oil  Company   nor,   to  its  knowledge,  its
predecessors have been named a potentially responsible party  under  CERCLA  or
similar  state  Superfund  laws  affecting  the Leases on which South Texas Oil
Company's wells are located.

      AIR EMISSIONS. South Texas Oil Company's  operations  and  activities are
subject to local, state and federal regulations for the control of emissions of
air  pollution. Legal and regulatory requirements in this area are  increasing,
and there  can  be no assurance that significant costs and liabilities will not
be incurred in the  future  as  a  result  of  new  regulatory developments. In
particular, regulations promulgated under the Clean Air  Act Amendments of 1990
may impose additional

                                      14
<PAGE>
(cont)
compliance  requirements  that  could  affect the operations.  However,  it  is
currently impossible to predict accurately the effect, if any, of the Clean Air
Act Amendments on South Texas Oil Company's  operations  and  activities. South
Texas  Oil Company may in the future become subject to civil or  administrative
enforcement  actions  for  failure  to  comply strictly with air regulations or
permits.  These  enforcement  actions  are generally  resolved  by  payment  of
monetary  fines and correction of any identified  deficiencies.  Alternatively,
regulatory   agencies   could   require  South  Texas  Oil  Company  to  forego
construction or operation of certain air emission sources.

      OSHA. In the conduct of its  activities  South  Texas Oil Company and its
operations  will  be  subject  to the requirements of the federal  Occupational
Safety and Health Act ("OSHA") and  comparable  state statutes. The OSHA hazard
communication standard, the EPA community right-to-know regulations under Title
III  of  the federal Superfund Amendment and Reauthorization  Act  and  similar
state statutes  require  us  to  organize information about hazardous materials
used, released or produced in its  operations. Certain of this information must
be provided to employees, state and  local  governmental  authorities and local
citizens.  South  Texas  Oil  Company  is also subject to the requirements  and
reporting set forth in OSHA workplace standards.

      OPA AND CLEAN WATER ACT. Federal regulations  require  certain  owners or
operators  of  facilities  that  store  or  otherwise handle oil to prepare and
implement spill prevention control plans, countermeasure  plans  and facilities
response  plans relating to the possible discharge of oil into surface  waters.
The Oil Pollution  Act of 1990 ("OPA") amends certain provisions of the federal
Water Pollution Control  Act  of  1972, commonly referred to as the Clean Water
Act ("CWA"), and other statutes as  they  pertain  to  the  prevention  of  and
response  to  oil  spills  into  navigable  waters.  The OPA subjects owners of
facilities  to  strict  joint  and  several liability for all  containment  and
cleanup costs and certain other damages  arising  from  a spill, including, but
not limited to, the costs of responding to a release of oil  to surface waters.
The  CWA  provides  penalties  for  any  discharges  of  petroleum  product  in
reportable  quantities  and  imposes  substantial  liability  for the costs  of
removing  a spill. State laws for the control of water pollution  also  provide
varying civil and criminal penalties and liabilities in the case of releases of
petroleum  or   its  derivatives  into  surface  waters  or  into  the  ground.
Regulations are currently  being  developed under OPA and state laws concerning
oil  pollution  prevention  and  other   matters  that  may  impose  additional
regulatory burdens on South Texas Oil Company.

      SAFE  DRINKING  WATER  ACT.  South Texas  Oil  Company's  operations  and
activities involve the disposal of produced  saltwater  and  other nonhazardous
oilfield  wastes  by reinjection into the subsurface. Under the  Safe  Drinking
Water Act ("SDWA"),  oil  and gas operators, like South Texas Oil Company, must
obtain a permit for the construction  and  operation  of  underground  Class II
injection  wells.  To protect against contamination of drinking water, periodic
mechanical integrity  tests  are  often  required  to  be performed by the well
operator.

      TOXIC SUBSTANCES CONTROL ACT. The Toxic Substances  Control  Act ("TSCA")
was  enacted to control the adverse effects of newly manufactured and  existing
chemical  substances.  Under  the  TSCA,  the EPA has issued specific rules and
regulations governing the use, labeling, maintenance,  removal from service and
disposal of PCB items, including transformers and capacitors  used  by  oil and
gas  companies.  South Texas Oil Company believes it is in compliance with  the
TSCA and that the  TSCA  will not have a material adverse effect on South Texas
Oil Company's operations and activities.


                                      15
<PAGE>

       In many cases there  is  a  bond  required of operators to ensure that a
prospective well is properly plugged and abandoned  when  its  useful  life  is
determined to be concluded.

       South  Texas Oil Company has posted such a bond in the amount of $50,000
with the Texas  Rail  Road  Commission  to  cover  its projects. Such bonds are
additions to the cost of South Texas Oil Company's projects.   The current bond
of $50,000 covers the wells operated by South Texas Oil Company  as required by
the Rail Road Commission of Texas under the Texas Administrative Code, Title 16
Economic  Regulation, Chapter 3 Oil and Gas Division, Rule {section}3.78  Fees,
Performance  Bonds  and  Alternate  Forms  of Financial Security Required To Be
Filed.

ITEM 2.  DESCRIPTION OF PROPERTY.

    The corporate offices of South Texas Oil  Company  are  located  in Austin,
Texas,  at 2802 Flintrock Trace, Suite 252, Austin TX 78738, at a monthly  cost
of $275.00

Current Oil and Gas Properties.

1.  BIG FOOT AND KYOTE FIELDS.

    Selected  assets  and leases of the Clipper Operating Company were acquired
on February 22, 2000  with  2,064,348  shares  of   Nutek,  Inc. (former parent
company)  stock  at the current market price of $.31 representing  $639,948;  a
note for $639,948 was issued  for  the  balance  of  the  purchase  price.  The
purchase price of $1,279,896  was  made  up  of  mineral  acreage for $454,959;
equipment at market value $788,217 and a gas pipeline at market  value $36,720.
(See  Exhibit  10.1: Letter of Intent to Purchase Selected Assets from  Clipper
Operating Company.)

    On or about  February  22,  2000,  South Texas Oil Company issued to Nutek,
Inc. 4,500,000 unregistered shares of its .001 par value common stock for these
assets, at their fair market value of $1,279,896.  (See  Exhibit 10.2: Purchase
Agreement of Selected Assets from Nutek Inc.)

    South Texas Oil Company acquired a 100 percent working  interest  in  these
properties  in  the  Big  Foot  and Kyote fields of Frio and Atascosa Counties,
Texas.

    The highlights of the purchase agreement included the following terms:

    A.  Purchase of all mineral acreage  at  a  price  of  one  hundred dollars
($100.00)  per  acre.   Total  price was four hundred fifty-four thousand  nine
hundred and fifty-nine dollars ($454,959).

    B.  Purchase of equipment will  be  at  market value.   Total price will be
seven  hundred  eighty-eight  thousand two hundred  and  seventeen  and  no/100
dollars ($788,217).

    C.  Purchase of pipeline will  be  at  market  value.   Total price will be
thirty six thousand seven hundred twenty and no/100 dollars ($36,720).

Big Foot Field: This is a 3,605 acre oil field that South Texas Oil Company has
under lease and is made up of 15 leases consisting of  75  wells.   It includes
several  existing  well bore that South Texas Oil Company intends to recomplete
in new pay zones shown on the logs.




                                      16
<PAGE>

BIG FOOT FIELD, FRIO COUNTY

Ann Burns            20 ac.
Ann Burns A      689.43 ac.
Burns            637.25 ac.
Davidson            300 ac.
Foster           331.062ac.
Jane Burns           80 ac.
Jane Burns 'A'       20 ac.
Jane Burns 'B'       80 ac.
Jane Burns 'C'       80 ac.
Jane Burns 'D'       80 ac.
Jane Burns 'E'       40 ac.
Jane Burns 'F'       20 ac.
Jane Burns 'G'       20 ac.
Shell - C.           80 ac.
Smith, et. al.   327.48 ac.
Talley              800 ac.

Total acreage in Big Foot field - Frio Co. = 3,605.222 ac.

Kyote Field: This is  a  944  acre  oil  field that South Texas Oil Company has
under lease and is made up of 5 leases consisting  of 16 wells.  This  property
has three  wells  that  are  candidates  for  re-entry  so  as  to workover and
recomplete  in zones that were not produced to their economic limits  and  were
prematurely plugged  during  low  oil prices in the 1980s. There are also other
possible productive zones that have never been produced.  One  of  the wells in
the field can be converted into a salt water disposal well.

KYOTE FIELD, ATASCOSA COUNTY

Crowther         197.42 ac.
Hill              87.41 ac.
Rizik               180 ac.
Tomblin          129.24 ac.
Wright          350.293 ac.

Total acreage in Kyote field - Atascosa Co. = 944.363 ac.

    Many of the existing wells are only pulling from the deeper D stratum, thus
there is more oil in the B stratum to be pumped at high production rates.

     South  Texas  Oil  Company  plans  its future growth through a balance  of
acquisition  of  working  interests  in  existing  wells  and leases, increased
production on current leases and new drilling on current leases  in  accordance
with  new  State  of  Texas  guidelines of one (1) well per ten (10) acres,  as
opposed to the previous ratio  of  one  (1)  well  per  twenty (20) acres. This
latter strategy of in-fill drilling affords  the most potential for South Texas
Oil Company. The new guidelines will allow South Texas Oil Company to place new
wells between existing wells that have previously  produced  or  are  currently
producing oil.

    South Texas Oil Company serves as operator with respect to these properties
acquired  pursuant  to  association  contracts in which South Texas Oil Company
obtains a controlling interest or holds  the largest ownership interest.  It is
anticipated  that  South  Texas  Oil  Company  will  also  participate  in  the
development  of  properties  operated  by  third  parties and in some cases may
delegate operations to a third party.
                                      17
<PAGE>

    The production from the fields for 2006  was 2,293 gross bbls for the Kyote
Field and 9,264 gross bbls for the Big Foot Field  and  3,464  for the Somerset
Field.  South Texas Oil Company currently has an interest in 122  wells;  14 in
the  Kyote  Field,  64  in the Big Foot Field and 44 in the Somerset Field. The
number of gross wells South Texas Oil Company operates in each field are:

BIG FOOT FIELD, FRIO COUNTY

Ann Burns          1
Ann Burns A        7
Burns              1
Davidson          11
Foster             8
Jane Burns         1
Jane Burns 'B'     2
Jane Burns 'C'     2
Jane Burns 'D'     1
Jane Burns 'E'     2
Jane Burns 'F'     1
Jane Burns 'G'     1
Shell - C.         3
Smith, et. al.     0
Talley            23

Total wells in Big Foot field - Frio Co. = 64

KYOTE FIELD, ATASCOSA COUNTY

Crowther         3
Hill             1
Rizik            0
Tomblin          2
Wright           8

Total wells in Kyote field - Atascosa County = 14

2.  Somerset Fields

On April 1, 2005, South Texas Oil Company completed the purchase of the leases,
farm-outs and mineral interests  held  by  JGM Oil Investments, LLC in Atascosa
County, Texas insofar as they cover the following minimum net revenue interests
(NRI).

Minimum Net Revenue Interest (NRI)

      A. G.O. Davidson Lease, a minimum of a seventy and 4/10 percent (70.4%)
net revenue interest (NRI).

      B. Oldjamie Lease, a minimum of a sixty five and 925/1000 percent
(65.925%) net revenue interest (NRI).

      C. Diamond Head Lease, a minimum of a fifty seven percent (57%) net
revenue interest (NRI).

      D.  Fowler A Lease, a minimum of a fifty eight and 1/8 percent (58.125%)
net revenue interest (NRI).

                                      18

<PAGE>

      E. Fowler C Lease, a minimum of a sixty three percent (63%) net revenue
interest (NRI).

      South  Texas  Oil Company additionally  purchased  all  of  the  personal
property associated with  the  oil wells on the lands described in the Purchase
Agreement attached as Exhibit 10.14  including,  but  not  limited to, all well
equipment, spare equipment and tank batteries. Equipment will be sold "as is".

      The  total purchase price was three hundred seven thousand  four  hundred
twenty-six dollars  ($307,426)  made  up  as  follows;  Purchase of all mineral
acreage at a price of one hundred dollars ($100.00)  per acre.  Total price for
the  acreage  was  sixty  nine  thousand  four hundred ten and  no/100  dollars
($69,410). Purchase of all equipment was at  a  depreciated price of forty five
percent  (45%)  of the replacement value. Total price  for  equipment  was  two
hundred thirty eight thousand sixteen and no/100 dollars ($238,016).

      The method of payment will be as  follows;  The  issuance of five hundred
twelve thousand three hundred seventy-seven (512,377) shares of South Texas Oil
Company restricted stock representing fifty percent (50%) of the purchase price
at  $0.30 per share, calculated as the prior thirty (30)  day  average  closing
price from the date of closing. The remaining amount of one hundred fifty three
thousand  seven  hundred  thirteen  and  no/100 dollars ($153,713) will be paid
monthly for a period of thirty six (36) months  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  purchase
price of the leases and assets  were based on current market conditions as well
as the historical purchase prices  made  by South Texas Oil Company for acreage
and a determination of the current replacement value of the equipment.

Somerset Field: This is a 694.1 acre oil field that South Texas Oil Company has
under lease and is made up of 7 leases consisting of 44 wells.

SOMERSET FIELD - ATASCOSA COUNTY

G.O.Davidson        40 ac.
Fowler 'A'         140 ac.
Fowler 'C'         229 ac.
Oldjamie         105.1 ac.
Diamond Head        40 ac.
Diamond Head 'A'   120 ac.
Diamond Head 'B'    20 ac.

Total acreage in Somerset Field - Atascosa Co. = 694.1 ac.

Total acreage in Big Foot, Kyote and Somerset fields = 5,243.685 ac.











                                      19
<PAGE>

The number of gross wells South Texas Oil Company operates in the Somerset
field are:

SOMERSET FIELD - ATASCOSA COUNTY

G.O. Davidson     2
Fowler 'A'        9
Fowler 'C'       22
Oldjamie          6
Diamond Head      1
Diamond Head 'A'  3
Diamond Head 'B'  1

Total wells Somerset = 44

Total of wells in Big Foot, Kyote and Somerset fields = 122

Oil Operations.

      South Texas Oil Company realized from  the sale of its production for the
fiscal year ended December 31, 2006, $55.25 per  barrel  of oil. Production was
calculated  as 9,264 barrels from the Big Foot Field, 2,293  barrels  from  the
Kyote Field and 3,464 barrels from the Somerset Field for a total production of
15,021 barrels  in  2006.  As  of the end of December 31, 2006, South Texas Oil
Company is currently producing from fifty-five wells in the Big Foot, Kyote and
Somerset Fields, from a potential  ninety-two wells that could be put back into
production through advanced stimulation techniques, on a total of approximately
5,244 acres as of December 31, 2006.

Productive Wells and Acreage

       South  Texas  Oil Company conducts  its  oil  and  gas  exploration  and
production operations  in southern Texas. At December 31, 2006, South Texas Oil
Company had interests in 122 wells located in Texas.

      All of South Texas  Oil  Company's Producing Properties are leased for an
indeterminate number of years, as  long as production is maintained. Therefore,
it is not possible to provide expiration dates of the Leases on which Producing
Properties are located.

      The following table sets forth,  at  December  31,  2006, by state, South
Texas  Oil  Company's  producing  wells,  Developed  Acreage,  and  Undeveloped
Acreage, excluding service (injection and disposal) wells:

<TABLE>
<S>                                  <C>       <C>          <C>        <C>
<C>           <C>
           Productive Wells (1)  Developed Acreage   Undeveloped Acreage (2)
             Gross  Net          Gross       Net      Gross          Net

Texas         37   37            1,350      1,350     3,893.69   3,893.69
              --   --            -----     -----      --------   --------
Totals        37   37            1,350      1,350     3,893.69   3,893.69

</TABLE>



                                      20
<PAGE>

       The  following  table sets forth, at December 31, 2005, by state,  South
Texas  Oil  Company's  producing  wells,  Developed  Acreage,  and  Undeveloped
Acreage, excluding service (injection and disposal) wells:

<TABLE>
<S>                                  <C>       <C>          <C>        <C>
<C>           <C>
             Productive Wells (1)    Developed Acreage  Undeveloped Acreage (2)
             Gross       Net         Gross       Net      Gross          Net

Texas         37  37          1,350      1,350     3,893.69   3,893.69
              --  --          -----     -----    --------     --------
Totals        37  37          1,350      1,350     3,893.69   3,893.69

</TABLE>

      The following table  sets  forth,  at  December 31, 2004, by state, South
Texas  Oil  Company's  producing  wells,  Developed  Acreage,  and  Undeveloped
Acreage, excluding service (injection and disposal) wells:

<TABLE>
<S>                                  <C>       <C>          <C>        <C>
<C>           <C>
             Productive Wells (1)    Developed Acreage  Undeveloped Acreage (2)
             Gross       Net         Gross       Net      Gross          Net

Texas         28  	 28           910        910      3,639.59   3,639.59
              --  	 --           ---        ---      --------   --------
Totals        28  	 28           910        910      3,639.59   3,639.59

</TABLE>

      (1) The wells in Texas are oil wells.
      (2) "Undeveloped Acreage" includes leasehold interests on which wells
          have not been drilled or completed to the point that would permit the
          production of commercial quantities of natural gas and oil regardless
          of whether the leasehold interest is classified as containing  proved
          undeveloped reserves.

      The basic terms of the oil and gas leases held by South Texas Oil Company
as of December 31, 2006 are shown in the following table.

                 Gross           Annual                    Lease
                 Acres          Rental (1)              Expiration

      Texas     5,243.685      Held By Production           N/A
                --------
                5,243.685

      The basic terms of the oil and gas leases held by South Texas Oil Company
as of December 31, 2005 are shown in the following table.

                 Gross           Annual                    Lease
                 Acres          Rental (1)              Expiration

      Texas     5,243.685      Held By Production           N/A
                --------
                5,243.685
                                      21
<PAGE>

      The basic terms of the oil and gas leases held by South Texas Oil Company
as of December 31, 2004 are shown in the following table.

                 Gross           Annual                    Lease
                 Acres          Rental (1)              Expiration

      Texas     4,549.59       Held By Production           N/A
                --------
                4,549.59




      (1)  Represents South Texas Oil Company's  share  of  the  annual  rental
payment.

       Leased  acres  Held  By  Production  remain  in  force so long as oil is
produced from the well on the particular lease. Leased acres which are not Held
By Production require annual rental payments to maintain  the  lease  until the
first to occur of the following the expiration of the lease or the time  oil is
produced from one or more wells drilled on the lease acreage.  At the time  oil
is produced from wells drilled on the leased acreage the lease is considered to
be  Held  By  Production.   Although  some of the leases do not contain  proved
developed reserves, they are still held  by  production  so  long  as  there is
production  within  a two year period.  All of South Texas Oil Company's leases
currently meet  this  requirement  and no leases are currently at risk of being
lost.

Production, Prices and Costs

      South  Texas  Oil  Company  is  not obligated  to  provide  a  fixed  and
determined quantity of oil or gas in the  future.  During the last three fiscal
years, South Texas Oil Company has not had, nor does it now have, any long-term
supply or similar agreement with any government or governmental authority.  The
following table sets forth South Texas  Oil Company's net production of oil and
gas,  average  sales prices and average production  costs  during  the  periods
presented:

                                      Year Ended December 31,
                               -------------------------------------
                               2006           2005              2004
                               ----           ----              ----
Production Data:
Production, Net - Oil (Bbls) 10,010           5,258             4,972
Gas (Mcf)                      0.00            0.00              0.00
Average sales price -
Oil (Bbls)                   $55.25          $53.03            $39.35
Gas (Mcf)                    $ 0.00          $ 0.00            $ 0.00

Average production
    costs per BOE
 (inclusive of taxes)        $54.92          $27.16            $31.09

Production Taxes             $ 3.26          $ 2.76            $ 4.73

Average production
   costs per BOE
(exclusive of taxes)         $51.66          $ 24.40           $26.36

                                      22
<PAGE>

      The components  of  production  costs  may vary substantially among wells
depending on the methods of recovery employed  and other factors, but generally
include severance taxes, administrative overhead, maintenance and repair, labor
and utilities.

Gas Operations.

As part of our evaluation of the DJ basin in Northeast  Colorado,  we committed
to  a 75% working interest participation in the drilling of 3 wells.   Drilling
was undertaken  on the Marilee State #11-16, 5,450 ft; the DOUD #43-5, 5,550 ft
and the DOUD #11-4,  5,600  ft.  The Marilee State #11-16 showed an 18 foot pay
zone in the D and a 6 foot pay  zone in the J.  The DOUD #43-5 showed a 42 foot
pay zone in the D and an 8 foot pay  zone in the J.  The DOUD #11-4 showed a 36
foot  pay zone in the D and a 7 foot pay  zone  in  the  J.   These  wells  are
scheduled to be placed in production in 2007.

ITEM 3.  LEGAL PROCEEDINGS.

      South  Texas  Oil  Company  is  from  time to time involved in litigation
incident to the conduct of its business.  Certain litigation with third parties
and present and former employees of South Texas  Oil  Company  is  routine  and
incidental,   such   litigation   can  result  in  large  monetary  awards  for
compensatory or punitive damages.

      South Texas Oil Company is not  a  party  to  any  pending material legal
proceeding.  To  the  knowledge  of  management,  no  federal, state  or  local
governmental  agency  is presently contemplating any proceeding  against  South
Texas Oil Company. To the  knowledge  of  management,  no  director,  executive
officer  or  affiliate  of  South  Texas  Oil  Company,  any owner of record or
beneficially of more than 5% of South Texas Oil Company's  common  stock  is  a
party  adverse to South Texas Oil Company or has a material interest adverse to
South Texas Oil Company in any proceeding.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

      No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 2006.

                                PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Market Information

South Texas  Oil  Company's  common  stock  is  traded  on the Over the Counter
Bulletin Board (OTCBB), under the symbol "STXX". The following table sets forth
the high and low bid quotations for the Common Stock for the periods indicated.

      Period                            High     Low

      Calendar Year 2005

      March 31, 2005                    1.01    0.20
      June 30, 2005                     1.16    0.25
      September 30, 2005                0.56    0.17
      December 31, 2005                 0.49    0.17


                                      23
<PAGE>

      Calendar Year 2006

      March 31, 2006                    0.51    0.17
      June 30, 2006                     2.74    0.25
      September 30, 2006                2.27    1.25
      December 31, 2006                 8.85    1.81


      These  quotations were obtained from QuoteMedia and  do  not  necessarily
reflect actual  transactions,  retail  mark-ups, mark-downs or commissions. The
transactions include inter-dealer transactions.

      These quotations reflect inter dealer  prices,  without  retail  mark-up,
markdown  or commission, and may not necessarily represent actual transactions.
These bid quotations have not been adjusted retroactively by any stock split.

Shareholders of Record and Outstanding Shares

      The authorized  capital  stock  of  South  Texas  Oil Company consists of
50,000,000  shares  of  common  stock with a par value of $.001  and  5,000,000
shares of preferred stock at a par value of $.001.

    Common Stock. The holders of  the common stock are entitled to one vote per
share on each matter submitted to a  vote  at  any meeting of the shareholders.
Shares of common stock do not carry cumulative  voting  rights, and therefore a
majority of the shares of outstanding common stock will be  able  to  elect the
entire  Board of Directors, and if they do so, minority stockholders would  not
be  able to  elect  any  persons  to  the  Board   of   Directors.  South Texas
Oil  Company's  By-laws  provide  that a majority of the issued and outstanding
shares of South Texas Oil Company shall  constitute  a quorum for shareholders'
meeting except with respect to certain matters for which  a  greater percentage
quorum  is  required  by  statute  or  South  Texas  Oil Company's Articles  of
Incorporation or By-laws.

     Shareholders  of  South  Texas Oil Company have no pre-emptive  rights  to
acquire additional shares of common stock or other securities. The common stock
is not subject to redemption and carries no subscription or conversion rights.

    Preferred Stock.  As of December  31,  2006, there were no preferred shares
issued or outstanding. The Board  of Directors is authorized by the Articles of
Incorporation  to  prescribe by resolution  the  voting  powers,  designations,
preferences, limitations,  restrictions,  reactive  rights  and  distinguishing
designations of the preferred shares if issued.

Shares Eligible for Future Sale

      As of December 31, 2006, South Texas Oil  Company  has  issued 13,444,743
shares of Common Stock.  This amount includes 4,299,191 shares  of common stock
of  South  Texas  Oil  Company that were issued in settlement of debentures  of
$450,000 due to the Longview  Equity  Fund,  LP,  $1,700,000  to  the  Longview
Fund  LP,  and  $150,000  to the Longview International Equity Fund, LP.

      The total issued and outstanding common shares also includes the issuance
of 1,959,113 shares of common stock for the exercise  of  warrants resulting in
proceeds  of  $1,124,531.  These warrant shares are related to  the  debentures
issued above.

      Of the 13,444,743 shares  of  common  stock  issued, 4,638,000 shares are
restricted shares.

                                      24
<PAGE>

     There  are no provisions in the By-laws or Articles  of  Incorporation  of
South Texas Oil Company which would delay, defer or prevent a change in control
of South Texas Oil Company.

    The stock  transfer  agent  for South Texas Oil Company is Transfer Online,
Inc., located at 317 SW Alder Street,  2nd  Floor,  Portland,  OR  97204. Their
telephone and fax numbers are respectively (503) 227-2950 and (503) 227-6874.

      As of April 10, 2007, South Texas Oil Company had Thirteen  million  five
hundred  and  thirteen thousand eight hundred and forty-one (13,513,841) shares
of its $.001 par  value  common  voting  stock issued and outstanding which are
held  by  two  thousand four hundred and sixty  nine  (2,469)  shareholders  of
record.  There are no preferred shares issued and outstanding.

Dividends

      South Texas Oil Company has not paid any dividends to date.  In addition,
it does not anticipate  paying  dividends  in the immediate foreseeable future.
The  Board of Directors of South Texas Oil Company  will  review  its  dividend
policy  from  time  to  time  to  determine the desirability and feasibility of
paying  dividends  after giving consideration  to  South  Texas  Oil  Company's
earnings, financial  condition,  capital requirements and such other factors as
the board may deem relevant.

Securities Authorized for Issuance under Equity Compensation Plans

      In March 2004, our board of directors adopted an executive stock option
plan, the Qualified Equity Incentive Stock Option Plan, which has not been
approved by our stockholders.

      The following table sets forth information as of December 31, 2006
regarding outstanding options granted under the plan to each of the directors
and executive officers

     Option/SAR Grants in Prior Years (Individual Grants):

                      Number of      Percent of total
                      Securities         Options
                      Underlying        granted to                  Exercise or
                       Options        employees in    base price   Expiration
    Name               Granted         fiscal year     ($/Share)        date
    -----            ------------   ----------------   ----------   -----------
Murray N. Conradie      150,000 (1)       18.2           $0.46        4/1/09
                        200,000 (1)       24.2           $0.50        4/1/14

Jason F. Griffith       100,000 (1)       12.1           $0.46        4/1/09
                        100,000 (1)       12.1           $0.50        4/1/14

Edward Shaw             100,000 (2)       12.1           $0.46       12/1/10
                        100,000 (2)       12.1           $0.50       12/1/15

Conrad Humbke            75,000 (1)       9.09           $0.46       11/2/09

   (1) - issued in 2004
   (2) - issued in 2005



                                      25
<PAGE>


Recent Sales of Unregistered Securities

      During the fiscal year ended  December  31, 2006, South Texas Oil Company
issued securities using the exceptions available  under  the  Securities Act of
1933  including  unregistered  sales  made  pursuant  to  Section 4(2)  of  the
Securities Act of 1933 as follows:

      On December 20, 2006, 2,419,355 shares of restricted  common stock valued
at $3.10 per share were issued to Doud Oil & Gas Company LLC, as pre-payment on
the  contemplated  purchase of 20,000 acres in Colorado.  The closing  of  this
transaction is contingent  on  the outcome of the evaluation by two independent
engineers and a fairness opinion being issued.

     This transaction was exempt  from  the  registration  requirements  of the
Securities  Act of 1933, as amended, by virtue of the exemptions provided under
section 4(2) was available because:

     - The transfer  or  issuance  did  not  involve underwriters, underwriting
       discounts or commissions;
     - A restriction on transfer legend was placed on all certificates issued;
     - The distributions did not involve general  solicitation or advertising;
       and,
     - The distributions were made only to insiders,  accredited  investors or
       investors  who  were  sophisticated enough to evaluate the risks of the
       investment.  Each shareholder was given access to all information about
       our business and the opportunity  to  ask questions and receive answers
       about our business from our management  prior  to making any investment
       decision.

Issuer Repurchases

      We  did  not  make  any repurchases of our equity securities  during  the
quarter ending December 31, 2006.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

Introduction

      The following discussion  and analysis should be read in conjunction with
our  accompanying  financial  statements  and  the  notes  to  those  financial
statements included elsewhere in  this  Annual Report. The following discussion
includes  forward-looking statements that  reflect  our  plans,  estimates  and
beliefs. Our  actual  results  could  differ materially from those discussed in
these forward-looking statements. Factors  that  could  cause  or contribute to
such  differences  include, but are not limited to, those discussed  below  and
elsewhere in this Annual Report.

Overview

      South Texas Oil  Company  derives  its  revenues  from  its producing oil
properties.  These  properties  consist  of working interests in producing  oil
wells having proved reserves.  South Texas Oil Company's capital for investment
in producing oil properties has been provided  by  the  sale of common stock to
its shareholders.





                                      26
<PAGE>

Plan of Operation

 (a)  Work-overs

 South  Texas  Oil Company intends to continue with its current  work-overs  of
existing wells over  the next 12 months by way of replacing any existing tubing
which has deteriorated  and/or  pumps  that  have failed on our existing wells.
The estimated cost for this rework program is  between  $1,500  to  $2,500  per
well.

 (b) In-field Drilling

 An  independently  commissioned  engineering  report  has  identified  several
potential  low  risk  offset  in-field  drilling  opportunities  on  our leased
acreage.  South Texas Oil Company has not yet made a determination when it will
drill in these fields.

       The  costs  for  the  drilling  of an in-field well are estimated to  be
$250,000 - $300,000 per new well based on the depth of the well.

 (c) Cash Requirements

      South Texas Oil Company intends to  meet its financial needs for the next
12 months from funds derived from revenue and  utilizing the recent funding and
credit line received.

 (d) Purchase of Additional Leases.

      South Texas Oil Company does not anticipate  acquiring  additional oil or
gas properties over the next 12 months other than those discussed  below and in
the  section  titled Subsequent Events.  However, South Texas Oil Company  will
continue  to evaluate  any  properties  as  the  opportunities  arise  and  the
potential of the property to produce oil and gas.

      South  Texas Oil Company intends to purchase up to a 75% working interest
(WI) and 60% royalty interest (RI) in 20,000 acres in the DJ basin in Northeast
Colorado being  offered  at  a  cost of approximately $15 million for a 75% WI.
The purchase will be undertaken by  issuing approximately 4,8 million shares of
South  Texas  Oil  Company  restricted  common  stock.   The  closing  of  this
transaction is contingent on the outcome  of  the evaluation by two independent
engineers and a fairness opinion being issued.

 (e) Expected Significant Changes in the Number of Employees

      South Texas Oil Company does not expect any  significant  change  in  the
number  of  employees  over  the  next  12  months  of  operations.   As  noted
previously,  South  Texas Oil Company currently coordinates all operations, oil
field  maintenance  and  supervision  activities  using  full  time  employees,
consultants and contract labor.

Managements Discussion and Analysis of Financial Condition and Results of
Operations

      For the calendar  year,  ended December 31, 2006, South Texas Oil Company
has generated $640,193 in revenues  and  generated  a  loss of $733,435 for the
same period.  This compares to $292,245 in revenues and  a  loss  of $1,020,568
for  the  calendar  year ended December 31, 2005.  For the calendar year  ended
December 31, 2006, South Texas Oil Company's working capital position decreased
by $352,698 from $1,606,987 as of December 31, 2005 to a positive $1,254,289 as
of December 31, 2006.


                                      27
<PAGE>

      Analysis of the calendar year  ended  December  31,  2006 compared to the
calendar year ended December 31, 2005.

      Net  loss  was  $733,435  for the calendar year ended December  31,  2006
compared to a loss of $1,020,568 for the calendar year ended December 31, 2005,
a decrease of $287,133.

      Total  expenses increased to  $1,373,628  for  the  calendar  year  ended
December 31, 2006  from  $1,312,813  for  the  calendar year ended December 31,
2005,  an  increase of $60,815. The increase in workover  expenses  during  the
period.

      Depreciation,  depletion,  and amortization expense for the calendar year
ended December 31, 2006 was $400,968 compared to $206,073 for the calendar year
ended December 31, 2005, an increase of $194,895. The increase resulted from an
increase in production during 2006.

      Interest  expense for the calendar  year  ended  December  31,  2006  was
$159,302 compared  to  $550,249 for the calendar year ended December 31, 2005 a
decrease of $390,947, the decrease is due to the costs associated with the 2005
funding and interest expense  on  the  debt  in 2005 and the conversion of debt
into equity in 2006.

Liquidity and Capital Resources

Liquidity

      Management believes that its working interest  revenues from the existing
wells will meet its minimum general and administrative  cost  requirements  and
provide the basic liquidity South Texas Oil Company needs to operate at current
levels  over  the  next  twelve months.  South Texas Oil Company entered into a
funding agreement on July  28,  2004  for  $2,300,000  which  has been received
through  the issuance of convertible notes. This should provide  the  necessary
capital for our needs over the next twelve months.

      On December  31,  2006  South  Texas Oil Company had assets of $4,485,891
compared to $4,107,838 on December 31,  2005,  an  increase of $378,053.  South
Texas Oil Company had a total stockholders' equity of  $3,941,598  on  December
31,  2006  compared to $986,143 on December 31, 2005, an increase in equity  of
$2,955,455.

      All assets are booked at historical cost.

      On December  31,  2006  South  Texas Oil Company had Office Equipment and
Vehicles of $54,186 compared to $4,279  on December 31, 2005, or an increase of
$49,907 which is a result of the purchase of new equipment and vehicles.

      On December 31, 2006 South Texas Oil  Company  had  proved  and  unproved
reserves  (net of depletion)  of  $3,110,523 compared to $2,197,813 on December
31, 2005, or an increase of $912,710  which  is  a  result  of  drilling  costs
incurred during 2006, as well as additional improvements on current properties.

      For the calendar year ended December 31, 2006, South  Texas  Oil  Company
has  decreased  its  working  capital  position  by  $352,698  from  a positive
$1,606,987 as of December 31, 2005 to a positive $1,254,289 as of December  31,
2006.





                                      28
<PAGE>

Capital Resources

       The Registrant's  capital  resources  are comprised primarily of private
investors, including members of management, who are either existing contacts of
the  Registrant's management or who come to the  attention  of  the  Registrant
through   brokers,   financial   institutions  and  other  intermediaries.  The
Registrant's  access to capital is  always  dependent  upon  general  financial
market conditions, especially those which pertain to venture capital situations
such as oil and  gas  exploration companies. The Registrant's capital resources
are not anticipated to change materially in 2007.

Material Commitments for Capital Expenditures.

South Texas Oil Company  has  made no material commitments for future projects.
Each drilling and/or rework project is stand-alone and although South Texas Oil
Company is 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  South  Texas Oil
Company has received the funds from its working interest partners and the funds
for  its  portion of the working interest are in place. The leases South  Texas
Oil Company  holds  are  "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. South Texas Oil Company
strives to accomplish the drilling or rework  planned  for each property within
the year first leased. When 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  South  Texas  Oil
Company's business planning at that time.

      The Registrant has no agreements with management, investors, shareholders
or  anyone  else  respecting  additional financing at this time. Because of the
nature of the Registrant's business,  there  are no trends in the nature of its
capital resources which could be considered predictable.

Inflation

      South Texas Oil Company's results of operations have not been affected by
inflation and management does not expect inflation to have a material impact on
its operations in the future.

Off-Balance Sheet Arrangements.

      South Texas Oil Company currently does not  have  any  off-balance  sheet
arrangements.

Recent Accounting Pronouncements


    In May  2005,  the  FASB  issued  SFAS  154,  "Accounting Changes and Error
Corrections - a Replacement of APB Opinion No. 20 and  FASB  Statement  No. 3".
SFAS   154   requires  retrospective  application  to  prior  period  financial
statements of  changes  in  accounting principle, unless it is impracticable to
determine either the

                                      29
<PAGE>
(cont)
period-specific effects or the  cumulative  effect of the change. SFAS 154 also
redefines  "restatement"  as  the  revising  of  previously   issued  financial
statements to reflect the correction of an error. This statement  is  effective
for accounting changes and corrections of errors made in fiscal years beginning
after  December  15,  2005.  South Texas Oil Company does not believe that  the
adoption  of  SFAS 154 will have  a  significant  impact  on  the  consolidated
financial statements.

In February 2006,  the  FASB issued Statement of Financial Accounting Standards
No. 155, ACCOUNTING FOR CERTAIN  HYBRID FINANCIAL INSTRUMENTS ("SFAS No. 155"),
which amends Statement of Financial  Accounting  Standards  No. 133, ACCOUNTING
FOR  DERIVATIVE  INSTRUMENTS  AND  HEDGING  ACTIVITIES  ("SFAS  No.  133")  and
Statement  of Financial Accounting Standards No. 140, ACCOUNTING FOR  TRANSFERS
AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES ("SFAS No.
140"). SFAS  No.  155  permits  fair value measurement for any hybrid financial
instrument that contains an embedded  derivative  that  otherwise would require
bifurcation,  establishes  a requirement to evaluate interests  in  securitized
financial assets to identify  interests  that  are  freestanding derivatives or
hybrid financial instruments containing embedded derivatives.  We do not expect
the  adoption  of  SFAS  155  to  have  a material impact on  its  consolidated
financial position, results of operations or cash flows.

In March 2006, the FASB issued Statement  of Financial Accounting Standards No.
156,  ACCOUNTING FOR SERVICING OF FINANCIAL  ASSETS  ("SFAS  No.  156"),  which
amends  FASB  Statement  No.  140 ("SFAS No. 140").  SFAS 156 may be adopted as
early as January 1, 2006, for calendar  year-end  entities,  provided  that  no
interim  financial  statements  have  been  issued. Those not choosing to early
adopt are required to apply the provisions as  of  the  beginning  of the first
fiscal  year  that begins after September 15, 2006 (e.g., January 1, 2007,  for
calendar year-end  entities). The intention of the new statement is to simplify
accounting for separately  recognized  servicing   assets and liabilities, such
as those common with mortgage securitization activities, as well as to simplify
efforts to obtain hedge-like accounting.   Specifically,  the FASB said FAS No.
156 permits a service using derivative financial instruments to report both the
derivative  financial instrument and related servicing asset  or  liability  by
using a consistent  measurement attribute, or fair value.  We do not expect the
adoption of SFAS 156  to  have  a material impact on its consolidated financial
position, results of operations or cash   flows.

In  June 2006, the Financial Accounting  Standards  Board  (FASB)  issued  FASB
Interpretation  No.  48,  "Accounting  for  Uncertainty  in  Income  Taxes - an
interpretation  of  FASB  Statement  No.  109"  (FIN  48),  which clarifies the
accounting for uncertainty in tax positions. This Interpretation  requires that
we recognize in our financial statements the benefit of a tax position  if that
position  is  more  likely  than  not of being sustained on audit, based on the
technical merits of the position. The  provisions of FIN 48 become effective as
of the beginning of our 2007 fiscal year,  with  the  cumulative  effect of the
change  in  accounting principle recorded as an adjustment to opening  retained
earnings. We  are  currently evaluating the impact that FIN 48 will have on our
financial statements.

In September 2006, the FASB issued Statement No. 157, "Fair Value Measurements"
(FAS 157), which defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements. The provisions of
FAS 157 become effective as of the beginning of our 2009 fiscal year. We do not
expect the adoption  of  SFAS  No.  157  to  have  a  material  impact  on  its
consolidated financial position, results of operations or cash flows.

In  September  2006,  the FASB issued Statement No. 158, "Employer's Accounting
for Defined Benefit Pension  and  Other  Postretirement Plans - an amendment of
FASB

                                      30
<PAGE>
(cont)
Statements  No.  87, 88, 106, and 132(R)" (FAS  158).  FAS  158  requires  that
employers recognize  the  funded  status  of  their defined benefit pension and
other postretirement plans on the balance sheet and recognize as a component of
other comprehensive income, net of tax, the plan-related  gains  or  losses and
prior  service  costs  or  credits  that  arise  during  the period but are not
recognized  as  components of net periodic benefit cost. We  do  not  feel  the
implementation of this will effect our financial statements.

In  September  2006,  the  Securities  and  Exchange  Commission  issued  Staff
Accounting  Bulletin   No.   108,   "Considering  the  Effects  of  Prior  Year
Misstatements  when  Quantifying  Misstatements   in   Current  Year  Financial
Statements" (SAB 108), which addresses how to quantify the  effect of financial
statement errors. The provisions of SAB 108 become effective  as  of the end of
our  2007  fiscal  year.  We  do  not expect the adoption of SAB 108 to have  a
significant impact on our financial statements.

In February 2007, the FASB issued Statement No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities,  including  an  amendment  of  FASB
Statement  No.  115"  (FAS 159). FAS 159 permits companies to choose to measure
many financial instruments  and  certain other items at fair value that are not
currently required to be measured  at  fair  value and establishes presentation
and  disclosure  requirements  designed  to  facilitate   comparisons   between
companies  that  choose  different measurement attributes for similar types  of
assets and liabilities. The  provisions  of  FAS 159 become effective as of the
beginning of our 2009 fiscal year. We are currently  evaluating the impact that
FAS 159 will have on our financial statements.

Subsequent Events

       On  January 31, 2007, South Texas Oil Company received  a  3  year,  $15
million revolving  credit facility. The credit facility will be used to further
the company's business  strategy.  The credit facility of prime plus 4% will be
used  for  acquisitions,  additional   well  workovers  and  expanded  drilling
programs.  The lender will receive 1,000,000  warrants to purchase common stock
exercisable at $10.00 per share of South Texas Oil Company common stock as part
of the funding commitment.

       On  February  8,  2007  the  Registrant's  independent   auditor,  Larry
O'Donnell,  CPA,  P.C. was dismissed.  The Registrant engaged Causey  Demgen  &
Moore, Inc. as its independent auditors to provide the requisite audit services
for the Company.

       On March 2,  2007,  South  Texas  Oil  named  Marlene Hutcheson as Chief
Financial Officer and entered into a one (1) year Employment Agreement. Marlene
Hutcheson is a licensed CPA in the State of Nevada. Ms. Hutcheson completed her
undergraduate studies at Arizona State University in December  1994  and earned
her Master of Business Administration from University of Phoenix in June 2002.

       On March 7, 2007, South Texas Oil Company agreed to acquire all  the oil
and gas interests and certain related assets of Leexus Properties Corp.   South
Texas Oil Company intends to issue 2,000,000 shares of restricted common stock,
provide  $3  million in cash and a note for $4 million as consideration for the
purchase.









                                      31
<PAGE>

Safe Harbor

      The discussions  of  the results of operations and financial condition of
South Texas Oil Company should  be  read  in  conjunction  with  the  financial
statements and notes pertaining to them that appear elsewhere in this Form  10-
KSB.  Statements  made  in  this Form 10-KSB that are not historical or current
facts  are  "forward-looking statements"  made  pursuant  to  the  safe  harbor
provisions of Section 27A of the Securities Act of 1933 (the "Act") and Section
21E of the Securities  Exchange  Act  of  1934.  These  statements often can be
identified  by  the  use  of terms such as "may," "will," "expect,"  "believe,"
"anticipate," "estimate," "approximate" or "continue," or the negative thereof.
South Texas Oil Company intends that such forward-looking statements be subject
to the safe harbors for such  statements.  South  Texas  Oil  Company wishes to
caution  readers  not  to  place  undue  reliance  on  any such forward-looking
statements,  which  speak  only  as  of  the  date  made.  Any  forward-looking
statements  represent  management's best judgment as to what may occur  in  the
future. However, forward-looking statements are subject to risks, uncertainties
and important factors beyond  the control of South Texas Oil Company that could
cause actual results and events to differ materially from historical results of
operations  and events and those  presently  anticipated  or  projected.  These
factors include  adverse  economic conditions, highly speculative nature of oil
and gas exploration and development,  risks  of foreign operation, entry of new
and stronger competitors, inadequate capital and  unexpected costs. South Texas
Oil Company disclaims any obligation subsequently to revise any forward-looking
statements to reflect events or circumstances after  the date of such statement
or to reflect the occurrence of anticipated or unanticipated events.










                                      32
<PAGE>
ITEM 7.  FINANCIAL STATEMENTS.


                           SOUTH TEXAS OIL COMPANY

                            FINANCIAL STATEMENTS
                            --------------------
                              December 31, 2006
                              December 31, 2005














                                      F-1
<PAGE>

                             TABLE OF CONTENTS
                             -----------------

                                                                    PAGE
                                                                    ----

INDEPENDENT AUDITORS' REPORT:

     Independent Auditors Report - 2006                             F-3

     Independent Auditors Report - 2005                             F-4


FINANCIAL STATEMENTS:

     Balance Sheets                                                 F-5

     Statements of Operations                                       F-6

     Statement of Changes in Stockholders' Equity                   F-7

     Statements of Cash Flows                                       F-8


NOTES TO FINANCIAL STATEMENTS:                                      F-9


SUPPLEMENTARY INFORMATION:

     Oil and Gas Producing Activities                               F-20




                                      F-2
<PAGE>




            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
South Texas Oil Company


We have audited the accompanying balance sheet of South  Texas  Oil Company, as
of  December  31,  2006,  and  the related statement of operations, changes  in
stockholders' equity, and cash flows  for the year then ended.  These financial
statements   are  the  responsibility  of  the   Company's   management.    Our
responsibility  is to express an opinion on these financial statements based on
our audit.

We conducted our  audit  in  accordance  with  standards  of the Public Company
Accounting Oversight Board (United States).  Those standards  require  that  we
plan  and  perform  the  audit to obtain reasonable assurance about whether the
financial statements are free  of  material  misstatement.   An  audit includes
examining, on a test basis, evidence supporting the amounts and disclosures  in
the  financial  statements.   An  audit  also includes assessing the accounting
principles  used and significant estimates  made  by  management,  as  well  as
evaluating the  overall  financial statement presentation.  We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the financial  statements  referred to above present fairly, in
all material respects, the financial position of South Texas Oil Company, as of
December 31, 2006, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted  in
the United States of America.


					CAUSEY DEMGEN & MOORE INC.
Denver, Colorado
April 17, 2007



                                      F-3
<PAGE>




Larry O'Donnell, CPA, P.C.
Telephone (303)745-4545
2228 South Fraser Street, Unit 1
Aurora, Colorado    80014


            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
South Texas Oil Company formerly Nutek Oil, Inc.
Midland, Texas


I  have  audited  the  accompanying  balance  sheet  of South Texas Oil Company
formerly Nutek Oil, Inc., a Nevada corporation, as of  December  31,  2005, and
the related statements of loss, changes in stockholders' equity, and cash flows
for the year then ended.  These financial statements are the responsibility  of
the  Company's management.  My responsibility is to express an opinion on these
financial statements based on my audits.

I conducted  my  audit   in  accordance  with  standards  of the Public Company
Accounting  Oversight Board (United States).  Those standards  require  that  I
plan and perform  the  audit  to  obtain reasonable assurance about whether the
financial  statements are free of material  misstatement.   An  audit  includes
examining, on  a test basis, evidence supporting the amounts and disclosures in
the financial statements.   An  audit  also  includes  assessing the accounting
principles  used  and  significant  estimates made by management,  as  well  as
evaluating the overall financial statement  presentation.   I  believe  that my
audit provides a reasonable basis for my opinion.

In  my  opinion, the financial statements referred to above present fairly,  in
all material  respects,  the  financial  position  of  South  Texas Oil Company
formerly  Nutek  Oil,  Inc.,  as of December 31, 2005, and the results  of  its
operations and cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.


LARRY O'DONNELL, CPA, P.C.
March 15, 2006 except for Note 2 and Note 13, which is April 13, 2007


                                      F-4


<TABLE>
<CAPTION>

<S>			<C>			<C>
			SOUTH TEXAS OIL COMPANY
			    BALANCE SHEETS
			DECEMBER 31, 2006 AND 2005



						     2006	    2005
						------------	------------
Current Assets:
Cash and cash equivalents	 		$  1,273,150 	$  1,874,862
Accounts receivable	 			      40,230 	      26,671
Prepaid expenses	 			       8,249 	       3,150
						------------	------------
Total current assets	 			   1,321,629 	   1,904,683

Office equipment,
  net of depreciation			 	      31,433 	       4,279
Vehicles, net of depreciation	 		      22,753 		   -
Proved reserves, net of depletion		   2,892,358 	   2,459,133
Unproved reserves, net of depletion		   1,238,950 	     389,369
Accumulated depreciation,
   depletion and amortization			  (1,022,732)       (650,976)

Deposits	 				       1,500 	       1,350
						------------	------------
Total Assets	 				$  4,485,891 	$  4,107,838
						============	============
Current Liabilities:
Accounts payable				$     17,252 	$     13,026
Accrued interest	 				   - 	      96,268
Asset retirement obligation		 	      28,283 	      26,484
Accrued payroll liabilities	 			   - 	      56,052
Other short term loans				 	   - 	      70,000
Related party current portion
  of long-term debt	 			      21,805 	      35,866
						------------    ------------
Total current liabilities		 	      67,340 	     297,696

Long term loans	 					   - 	   2,300,000
Asset retirement obligation,
  long term					     430,777 	     452,267
Related party L.T. debt,
  net of current portion	 		      46,176 	      71,732
						------------	------------
Total Liabilities				     544,293 	   3,121,695
						------------	------------
Stockholders' Equity:
Preferred stock, $0.001 par value
    5,000,000 shares authorized,
    none issued	 					   - 		   -
Common stock, $0.001 par value,
  50,000,000 shares authorized;
  13,444,743 shares issued
  and outstanding at December 31,
  2006 and 4,893,677 at December 31, 2005	     13,445 	       4,894
Additional paid-in capital	 		 13,580,620  	   2,400,281
Subscribed Stock				 (7,500,000)		   -
Accumulated deficit				 (2,152,467)	  (1,419,032)
						------------	------------
Total stockholders' equity	 		  3,941,598 	     986,143
						------------	------------
Total Liabilities and Stockholders' Equity      $  4,485,891 	$  4,107,838
						============	============



The accompanying notes to financial statements are an integral part of these financial statements.

</TABLE>


                                      F-5
<PAGE>
<TABLE>
<CAPTION>

<S>			<C>			<C>
		       SOUTH TEXAS OIL COMPANY
 		      STATEMENTS OF OPERATIONS
	   FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


					   2006		    2005
				       ----------	-----------
Revenue
Oil and gas sales	 	       $  553,058 	$   278,817
Interest income	 			   74,913 	     13,428
Forgiveness of debt	 		   12,222 		  -
				       ----------       -----------
     Total Revenues	 		  640,193 	    292,245

Expenses

General and administrative	 	  444,262 	    379,134
Production costs	 		  123,222  	    117,813
Workovers	 			  213,268 	     43,206
Depreciation, depletion,
  and amortization			  400,968 	    206,073
Interest expense	 		  159,302 	    550,249
Production taxes	 		   32,606 	     16,338
				       ----------	-----------
     Total expenses	 		1,373,628 	  1,312,813
				       ----------	-----------
Income before provision for
  income taxes	 			 (733,435)	 (1,020,568)
Provision for income taxes	 		-   		  -
				       ----------	-----------
Net Loss			       $ (733,435)	$(1,020,568)
				       ==========	===========
Weighted average number
of common shares outstanding		8,461,420 	  4,640,474
				       ==========	===========
Basic and Diluted Net Loss Per Share   $    (0.09)	$     (0.22)
				       ==========	===========

The accompanying notes to financial statements are an integral part of these financial statements.
</TABLE>


                                      F-6
<PAGE>
<TABLE>
<CAPTION>
<S>					<C>					<C>				<C>

				   SOUTH TEXAS OIL COMPANY
			 STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
			FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

				Common		Common		Additional
				Stock		Stock		Paid-in		Subscribed     Accumulated   Total
				Shares		Amount		Capital		Stock	       Deficit	     Equity
				---------	--------	-----------	----------     ------------  -----------
Balance at
December 31, 2004		3,061,474       $  3,061 	$   730,272 	$ (117,250)    $   (398,466) $   217,618
				=========	========	===========	==========     ============  ===========
Issued for services		   36,970 	      37 	      8,963 			  	           9,000

Issued for services		   12,210 	      12 	      2,988 		       	  	           3,000

Final adjustment on
Nutek dividend issuance	    	    6,740 	       7 	       (491)			   		    (484)

Payment received for
subscribed stock		 	-   	       -   		  -   	    61,984 	          -       61,984

Issued for settlement
of debt		 	  	  957,349 	     957          1,002,874 		 -   	          -    1,003,831

Purchase of new leases		  512,377 	     512 	    153,201 		 -   	          -      153,713


Purchase of option for
additional drilling
benefits		 	   20,000 	      20 	      4,980 		 -   	          -   	   5,000

Issued for services	    	    4,219 	       5 	      1,050 		 -   	      	  -   	   1,055

Sale of common stock		  177,778 	     178 	     39,822 		 -   	     	  -   	  40,000

Issued for services-
Dave Cummings		    	    4,560 	       5 	      1,995 		 -   	      	  -   	   2,000

Debt discount from
convertible, fully
expensed					  		    113,241 				         113,241

Beneficial conversion
feature from warrants,
fully expensed			   				    142,032 				         142,032

Issued for services		  100,000 	     100 	     16,900 		 -   	          -   	  17,000

Debt discount from
convertible, fully
expensed					    		     80,154 					  80,154

Beneficial conversion
feature from warrants,
fully expensed			 				    102,300 			                 102,300

Payment of subscribed stock							$   55,266 			  55,266

Net Profit (Loss) for the
Year Ended December 31, 2005			       -   	          -   		 -       (1,020,568)  (1,020,568)
				---------	--------	-----------	----------     ------------   ----------
Balance at
December 31, 2005		4,893,677 	$  4,894 	$ 2,400,281 	$       (0)    $ (1,419,032)  $  986,142
				=========	========	===========	==========     ============   ==========
Conversion of
convertible debt	        4,299,191  	  4,299 	$ 2,531,279 				       2,535,578

Cash on receipt of
warrants (7/18/06 & 7/25/06)	1,959,113 	  1,959 	$ 1,122,572 				       1,124,531

Reversal of shares not issued	  (16,770)	    (17)	$    (3,038)					  (3,055)

Savings on settlement of
debt via Datascension		 (115,868)	   (116)	$       116 					       -

Deposit on Colorado Leases,
37.5% WI		 	2,419,355 	  2,419 	$ 7,497,581 	$(7,500,000)			       -

Issues for services		    6,045 	      7 	$    31,830 					  31,837

Net Profit (Loss) for Year
Ended December 31, 2006		        -   	      -   		  -   		 -   	   (733,435)    (733,435)
				---------	--------	-----------	----------     ------------   -----------
Balance at December 31, 2006   13,444,743 	$13,445 	$13,580,620 	$(7,500,000)    $(2,152,467)  $ 3,941,598
			       ==========	========	===========	==========     ============   ===========



The accompanying notes to financial statements are an integral part of these financial statements.
</TABLE>


                                      F-7
<PAGE>
 <TABLE>
<CAPTION>
<S>				<C>		<C>


				    SOUTH TEXAS OIL COMPANY
				    STATEMENTS OF CASH FLOWS
			 FOR THE YEARS ENDED, DECEMBER 31, 2006 AND 2005





								     2006		      2005
								 -----------		 -----------
Cash Flows from Operating Activities:
Net loss							 $  (733,435)		 $(1,020,568)

Stock issued (cancelled) for services and purchases		      28,782 		      37,055
Non cash financing costs related to funding		 		   - 		     437,727
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation, depletion and amortization		 	     400,968 		     206,073
(Increase) decrease in accounts receivable		 	     (13,560)		     (10,689)
(Increase) decrease in deposits					        (150)		 	   -
Increase in prepaid expenses		 			      (5,098)		      (4,500)
Increase in related party accrued interest			      (9,000)		     (11,500)
Increase in accrued interest					     148,310 		      96,268
(decrease) in asset retirement obligation			     (48,904)		 	   -
Increase (decrease) in related party payable		 		   - 		    (295,706)
Increase (decrease) in payroll liabilities			     (56,052)		      53,757
Increase (decrease) in accounts payable		 		       4,226 		     (39,138)
								 -----------		 -----------
Net cash used by operating activities				    (283,913)		    (551,221)
								 -----------		 -----------
Cash Flows from Investing Activities:
Purchase of property and equipment		 		  (1,332,713)		     (97,393)
								 -----------		 -----------
Cash Flows from Financing Activities:
Increase (decrease) in loans payable				     (70,000)		   2,263,563
Increase in related party notes payable		 		     (39,617)		      50,036
Increase in subscribed stock		 				   - 		     117,250
Increase in line of credit					 	   - 		      (1,834)
Issuance of stock						 	   - 		        (484)
Sale of common stock		 				   1,124,531 		      40,000
								 -----------		 -----------
Net cash provided by financing activities		 	   1,014,914 		   2,468,531
								 -----------		 -----------
Net Increase (decrease) in Cash 				    (601,712)		   1,819,918

Balance, Beginning						   1,874,862 		      54,944
								 -----------		 -----------
Balance, Ending							 $ 1,273,150 		 $ 1,874,862
								 ===========		 ===========
Interest Paid							 $    10,500 		 $    81,222
								 ===========		 ===========
Taxes Paid		 					 $	   - 		 $	   -
								 ===========		 ===========
Summary of Non Cash Items:

During 2005, the company purchased leases which the seller financed $ 138,933.

During 2006, convertible debt of $2,535,578 was converted into common stock.


The accompanying notes to financial statements are an integral part of these financial statements.
</TABLE>



                                      F-8
<PAGE>

                            SOUTH TEXAS OIL COMPANY
                         NOTES TO FINANCIAL STATEMENTS

NOTE 1 - HISTORY AND ORGANIZATION OF THE COMPANY

Nutek Oil, Inc. was incorporated  on  December  3, 1998.  The company is in the
oil producing business in the United States of America.   The Company purchased
selected  equipment  and  assets  from  Clipper  Operating  Company  and  began
operations as a separate company during 2001.

The  company  changed its name from Nutek Oil to South Texas Oil  on  April  1,
2005.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS
Cash and cash equivalents  consist of highly liquid investments with maturities
of three months or less when purchased.

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.

DIVIDEND POLICY
The Company has not yet adopted any policy regarding payment of dividends.

COMPREHENSIVE INCOME
Statements of Financial  Accounting  Standards No. 130, Reporting Comprehensive
Income (SFAS 130), requires that total  comprehensive income be reported in the
financial statements.  The Company does not  have  any  items  considered to be
other comprehensive income.

FIXED ASSETS
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.

Details of the Asset Retirement Account are as follows:


Balance, 12/31/04     480,492
        Accretion      27,354
         Payments     (29,095)
		     ---------
Balance, 12/31/05     478,751
        Accretion      29,213
         Payments     (48,904)
		     ---------
Balance, 12/31/06     459,060
		     =========


                                      F-9
<PAGE>
(cont)
Based on the historical amounts  expended  during  the prior years, the company
has assessed $28,283 and $26,484 as the current portion,  with  the  balance at
December 31, 2006 and 2005 as long term.

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 over the following estimated useful lives:

           Office equipment           5 years
           Vehicles                   5 years

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  - Effective for reporting periods  beginning  after  the
issuance date of 4 April 2005, the FASB Staff Position No. FAS 19-1 "Accounting
for Suspended Well Costs"  provides  guidance in the accounting for exploratory
well costs. Paragraph 19 of FASB Financial  Accounting  Standards Statement No.
19  "Financial  Accounting  and  Reporting by Oil and Gas Producing  Companies"
(SFAS 19) requires the cost of drilling  exploratory  wells  to  be capitalized
pending  determination of whether the well has found proved reserves.  FSP  FAS
19-1 amended SFAS 19 to allow suspended well costs to remain capitalized beyond
one year from  drilling  if  certain  specific  criteria are met and additional
disclosures provided. The company has not recognized any changes to the amounts
previously capitalized.

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.



                                     F-10
<PAGE>

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 - Costs incurred  to  drill  and  equip  development  wells,
including unsuccessful development wells, are capitalized.

EARNINGS PER SHARE
Basic earnings  per  share  are  computed  using the weighted average number of
shares of common stock outstanding for the period  end.   The net income (loss)
for  the  period  end  is  divided  by  the weighted average number  of  shares
outstanding for that period to arrive at earnings per share.

REVENUE RECOGNITION
Revenues from the sale of oil are recorded  using the sales method.  Under this
method,  revenue  is  recognized based on the cash  received  rather  than  the
Company's proportionate  share  of  the  oil  and  gas  produced.  Oil  and gas
imbalances and related values at December 31, 2006 and 2005 were insignificant.

CONCENTRATIONS OF CREDIT RISK
Credit  risk  represents  the  accounting  loss that would be recognized at the
reporting date if counter parties failed completely  to  perform as contracted.
Concentrations of credit risk (whether on or off balance sheet) that arise from
financial  instruments  exist for groups of customers or counter  parties  when
they have similar economic  characteristics  that  would cause their ability to
meet contractual obligations to be similarly affected by changes in economic or
other conditions described below.

The Company operates in one segment, the oil and gas  industry.  The  Company's
customers   are  located  within  the  United  States  of  America.   Financial
instruments that  subject the Company to credit risk consist principally of oil
and gas sales which  are  based  on  a short-term purchase contracts from Shell
Trading (US) Company and various other  gatherers  in  the  area,  with related
accounts receivable subject to credit risk.

During  the  year  ended December 31, 2006 and 2005 Shell Trading (US)  Company
accounted  for 88% and  82%,  respectively,  of  the  Company's  oil  revenues.
Management does  not  believe  the  loss  of  Shell  Trading (US) Company would
materially affect the ability to sell the oil.

INCOME TAXES
The Company experienced losses during the previous fiscal  tax  year  reported.
The  Company will review its need for a provision for federal income tax  after
each operating  quarter.  The Company has adopted FASB No. 109, as discussed in
Note 7.


                                     F-11
<PAGE>
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In  May  2005,  the  FASB  issued SFAS No. 154, "Accounting Changes  and  Error
Corrections"  ("SFAS  154"). SFAS  154  replaces  Accounting  Principles  Board
Opinion No. 20 "Accounting  Changes"  and  SFAS  No.  3,  "Reporting Accounting
Changes in Interim Financial Statements-An Amendment of APB  Opinion  No.  28."
SFAS  154  provides  guidance on the accounting for and reporting of accounting
changes and error corrections. SFAS 154 requires "retrospective application" of
the direct effect of a  voluntary  change  in  accounting  principle  to  prior
periods'  financial  statements where it is practicable to do so. SFAS 154 also
redefines the term "restatement" to mean the correction of an error by revising
previously issued financial  statements.  SFAS  154 is effective for accounting
changes and error corrections made in fiscal years beginning after December 15,
2005 unless adopted early. We do not expect the adoption  of SFAS 154 to have a
material impact on its consolidated financial position, results  of  operations
or  cash  flows, except to the  extent that the statement subsequently requires
retrospective application of a future item.

In February  2006,  the FASB issued Statement of Financial Accounting Standards
No. 155, ACCOUNTING FOR  CERTAIN HYBRID FINANCIAL INSTRUMENTS ("SFAS No. 155"),
which amends Statement of  Financial  Accounting  Standards No. 133, ACCOUNTING
FOR  DERIVATIVE  INSTRUMENTS  AND  HEDGING  ACTIVITIES  ("SFAS  No.  133")  and
Statement of Financial Accounting Standards No. 140, ACCOUNTING  FOR  TRANSFERS
AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES ("SFAS No.
140").  SFAS  No.  155  permits fair value measurement for any hybrid financial
instrument that contains  an  embedded  derivative that otherwise would require
bifurcation, establishes a requirement to  evaluate  interests  in  securitized
financial  assets  to  identify interests that are freestanding derivatives  or
hybrid financial instruments  containing embedded derivatives. We do not expect
the  adoption  of  SFAS 155 to have  a  material  impact  on  its  consolidated
financial position, results of operations or cash flows.

In March 2006, the FASB  issued Statement of Financial Accounting Standards No.
156, ACCOUNTING FOR SERVICING  OF  FINANCIAL  ASSETS  ("SFAS  No.  156"), which
amends  FASB  Statement  No. 140 ("SFAS No. 140").  SFAS 156 may be adopted  as
early as January 1, 2006,  for  calendar  year-end  entities,  provided that no
interim  financial  statements have been issued.  Those not choosing  to  early
adopt are required to  apply  the  provisions  as of the beginning of the first
fiscal year that begins after September 15, 2006  (e.g.,  January  1, 2007, for
calendar year-end entities). The intention of the new statement is to  simplify
accounting for separately recognized servicing assets and liabilities, such  as
those  common  with  mortgage securitization activities, as well as to simplify
efforts to obtain hedge-like  accounting.   Specifically, the FASB said FAS No.
156 permits a service using derivative financial instruments to report both the
derivative financial instrument and related servicing  asset  or  liability  by
using  a consistent measurement attribute, or fair value.  We do not expect the
adoption  of  SFAS  156 to have a material impact on its consolidated financial
position, results of operations or cash flows.

In June 2006, the Financial  Accounting  Standards  Board  (FASB)  issued  FASB
Interpretation  No.  48,  "Accounting  for  Uncertainty  in  Income  Taxes - an
interpretation  of  FASB  Statement  No.  109"  (FIN  48),  which clarifies the
accounting for uncertainty in tax positions. This Interpretation  requires that
we recognize in our financial statements the benefit of a tax position  if that
position  is  more  likely  than  not of being sustained on audit, based on the
technical merits of the position. The  provisions of FIN 48 become effective as
of the beginning of our 2008 fiscal year,  with  the  cumulative  effect of the
change  in  accounting principle recorded as an adjustment to opening  retained
earnings. We  are  currently evaluating the impact that FIN 48 will have on our
financial statements.


                                     F-12
<PAGE>

In September 2006, the FASB issued Statement No. 157, "Fair Value Measurements"
(FAS 157), which defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements. The provisions of
FAS 157 become effective as of the beginning of our 2009 fiscal year. We do not
expect the adoption  of  SFAS  No.  157  to  have  a  material  impact  on  its
consolidated financial position, results of operations or cash flows.

In  September  2006,  the FASB issued Statement No. 158, "Employer's Accounting
for Defined Benefit Pension  and  Other  Postretirement Plans - an amendment of
FASB Statements No. 87, 88, 106, and 132(R)"  (FAS  158). FAS 158 requires that
employers  recognize  the funded status of their defined  benefit  pension  and
other postretirement plans on the balance sheet and recognize as a component of
other comprehensive income,  net  of  tax, the plan-related gains or losses and
prior  service  costs or credits that arise  during  the  period  but  are  not
recognized as components  of  net  periodic  benefit  cost.  We do not feel the
implementation of this will effect our financial statements.

In  September  2006,  the  Securities  and  Exchange  Commission  issued  Staff
Accounting   Bulletin   No.   108,  "Considering  the  Effects  of  Prior  Year
Misstatements  when  Quantifying   Misstatements   in  Current  Year  Financial
Statements" (SAB 108), which addresses how to quantify  the effect of financial
statement errors. The provisions of SAB 108 become effective  as  of the end of
our  2007  fiscal  year.  We  do  not expect the adoption of SAB 108 to have  a
significant impact on our financial statements.

In February 2007, the FASB issued Statement No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities,  including  an  amendment  of  FASB
Statement  No.  115"  (FAS 159). FAS 159 permits companies to choose to measure
many financial instruments  and  certain other items at fair value that are not
currently required to be measured  at  fair  value and establishes presentation
and  disclosure  requirements  designed  to  facilitate   comparisons   between
companies  that  choose  different measurement attributes for similar types  of
assets and liabilities. The  provisions  of  FAS 159 become effective as of the
beginning of our 2009 fiscal year. We are currently  evaluating the impact that
FAS 159 will have on our financial statements.

ACCOUNTS RECEIVABLE
Accounts receivable are stated at the amount management expects to collect from
outstanding  balances. Management provides for probable  uncollectible  amounts
through a charge to earnings and a credit to a valuation allowance based on its
assessment of  the current status of individual accounts.  Balances outstanding
after management has used reasonable collection efforts are written off through
a charge to the  valuation allowance and a credit to trade accounts receivable.
Changes in the valuation  allowance  have  not  been  material to the financial
statements.

STOCK-BASED COMPENSATION

The  Company  applies  SFAS  123R  in  accounting for stock options  issued  to
employees.  For stock options and warrants issued to non-employees, the Company
applies SFAS No. 123, Accounting for Stock-Based  Compensation,  which requires
the recognition of compensation cost based upon the fair value of stock options
at the grant date using the Black-Scholes option pricing model.

For 2005, the Company applied Accounting Principles Board ("APB")  Opinion  No.
25,  Accounting  for Stock Issued to Employees, and Related Interpretations, in
accounting for stock  options  issued  to employees. Under APB No. 25, employee
compensation cost is recognized when estimated  fair  value  of  the underlying
stock

                                     F-13
<PAGE>
(cont)
on  date  of  the  grant exceeds exercise price of the stock option. For  stock
options and warrants issued to non-employees, the Company applies SFAS No. 123,
Accounting for Stock-Based  Compensation,  which  requires  the  recognition of
compensation cost based upon the fair value of stock options at the  grant date
using the Black-Scholes option pricing model.

The following table represents the effect on net loss and loss per share if the
Company  had applied the fair value based method and recognition provisions  of
Statement  of  Financial  Accounting  Standards (SFAS) No. 123, "Accounting for
Stock-Based  Compensation", to stock-based employee compensation for  the  year
ended December 31, 2005:
                                                  2005
      Net loss, as reported                  $ (1,020,568)
      Add:  Stock-based employee
           compensation expense
          included in reported loss,
          net of related tax effects                  --
      Deduct:  Total stock-based employee
          Compensation expense determined
          under fair value based methods
          for all awards, net of related
          tax effects                             (21,221)
                                             ------------

        Pro forma net loss                   $ (1,041,789)

        Net loss per common share:
            Basic and fully diluted loss
             per share, as reported          $      (0.22)
            Basic and fully diluted loss
                  per share, pro forma       $      (0.22)

For the options  granted in 2005, the company used the exercise price of $0.46,
the fair market value  of  $0.49  per share at the end of the year, a 3.25 year
term, and 23% volatility to determine the value of the options.

NOTE 3 - OIL PROPERTIES

      Oil properties are made up of the following:

                                                            2006        2005


Proved Reserves, net of accumulated depletion            2,024,548  1,914,834
Unproved Reserves, net of accumulated depletion          1,085,975    282,692
                                                         ---------  ---------
                                        Total            3,110,523  2,197,526


NOTE 4 - LINE OF CREDIT

The Company has a line of credit agreement  with  a financial institution which
provides maximum borrowing of $75,000. Interest on outstanding balances accrues
at prime plus 2% and is payable monthly. The current  interest rate at December
31,  2006 is 7.25%.  The line must be renewed each year.  As  of  December  31,
2006, the balance on this line was $0.


                                     F-14
<PAGE>

NOTE 5 - RELATED PARTY TRANSACTIONS

The Company  has  an outstanding note payable to Murray Conradie, the Company's
CEO, related to the  purchase  of  wells during the 2nd quarter of 2005, with a
balance as of December 31, 2006 of $44,402.  This note will 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  has  an outstanding note payable to Jason Griffith, the Company's
former CFO, related  to  the  purchase of wells during the 2nd quarter of 2005,
with a balance as of December 31,  2006  of  $21,014.   This  note will 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.

      South Texas Oil 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 Mr. Conradie.  The monthly
rental amount is $750.

      South  Texas  Oil  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 Mr. Conradie.  South Texas Oil
Company pays a monthly rental amount of $1,286 for usage of this equipment.

      A material relationship exists between  JGM  Oil  Investments,  LLC  from
which  the  Somerset leases  were purchased on April 1, 2005  for $307,426  and
South Texas Oil  Company  in so  far  as  Mr.  Conradie the President/CEO and a
Director  of  South  Texas  Oil Company  has  an  ownership interest in JGM Oil
Investments, LLC.

      A material relationship  exists  between  Horizon  Ridge Oil Company, the
operator of record with the Texas Rail Road Commission for  the Somerset leases
which were purchased on April 1, 2005 and South Texas Oil Company  in so far as
Mr. Conradie the President/CEO and a Director of South Texas Oil Company has an
ownership  interest in Horizon Ridge Oil Company. A nominal amount is  paid  to
Horizon Ridge  Oil  Company each month to cover the Rail Road Commission Surety
bond for these leases  as well as the reporting requirements with the Rail Road
Commission. The amount to date has averaged less than $1,100 per month.

NOTE 6 - CONVERTIBLE DEBTS AND WARRANTS

On   July  28,  2005,  the  Company  entered  into  a  funding  agreement  from
institutional and accredited investors with gross proceeds of $2,300,000, to be
received  in  two  traunches.  The  first  traunch  of $1,300,000 received upon
execution of the agreement and the remaining $1,000,000  within five days after
a to be filed registration statement becomes effective, or  sooner  if  certain
milestones are achieved. The remaining $1,000,000 was received on November  10,
2005  as  all  conditions  of  the funding agreement had been met including the
effectiveness of the registration statement.

The funding consisted of convertible securities which shall convert into forty-
five percent (45%) equity of the  fully  diluted  shares  of  South  Texas  Oil
Company if both traunches are received.

In conjunction   with   the  convertible notes, warrants   were  issued to  the
note holders that convert  into   1,959,228  common  shares  with  an  exercise
price of $.574 per share.

South  Texas  Oil  is  using  the  net proceeds of the first traunch to perform
workovers on existing wells, drill two  new  wells,  capital  expenditures  and
working  capital.  The  second  traunch will be used to drill an additional 4-5
wells.

For the year ended December 31, 2005, the Company recorded the loan
of $2,300,000 as well as the interest accrual of $78,405.

The  company  initially  determined  the  relative   fair   value  between  the
convertible debt and the detached warrants. After allocating  a  portion of the
proceeds  to  the  detached  warrants  (based  on  relative  fair values),  the
convertible  debt  and  the detached warrants were recorded. The  Company  then
evaluated whether the embedded conversion option within the debt instrument was
beneficial (had an intrinsic  value)  to  the  holder. The effective conversion
price (that is, the allocated proceeds divided by  the  number  of shares to be
received  on conversion) based on the proceeds was determined. The  total  debt
discount immediately after the initial accounting was performed, as well as the
beneficial conversion feature were expensed on the income statement.

The debt discount related to the debt was $193,395 and was expensed at issuance
of each traunch  of  the  debt.  The  expense  was  to interest expense and the
offsetting entry was to additional paid in capital.

The beneficial conversion feature related to the warrants  was $244,332 and was
also  expensed  at  the issuance. The expense was to interest expense  and  the
offsetting entry was  to  additional  paid  in  capital.  The latter related to
1,959,228 and 851,789 warrants, with a calculated relative fair value, based on
Black-Scholes,  of  $126,794  and 89,068, respectively.  For the  Black-Scholes
model, the company assumed a risk  free  rate  of 3.50%, a dividend rate of 0%,
the respective stock price and exercise price for  each group of warrants and a
volatility rate based on the trailing 18-month historical prices.

During 2006, the company issued 4,299,191 shares of common stock of South Texas
Oil Company in settlement of debentures  of $450,000 due to the Longview Equity
Fund, LP, $1,700,000  to   the  Longview    Fund  LP,  and  $150,000  to    the
Longview International Equity Fund, LP.

Concurrent with the funding, the  Company  had  issued  warrants  to  the  debt
holders.  During 2006,  the  debt  holders  exercised  those warrants  and  the
Company issued 1,959,113 shares of common stock for the exercise  of  warrants
resulting in proceeds  of  $1,124,531.


NOTE 7 - STOCKHOLDERS' EQUITY

During the year ended December 31,  2005,  the  Company  sold 177,778 shares of
common stock for $40,000.

During the year ended December 31, 2005, the Company issued  157,959  shares of
common stock for services rendered valued at $32,055.

During  the year ended December 31, 2005, the Company issued 512,377 shares  of
common stock  for the purchase of additional interest in oil leases, as well as
issuing 957,249 to settle debts listed on the books at $1,003,831.

The company also  issued  20,000  shares of stock, valued at $5,000, to royalty
owners of certain leases in relation  to  an  agreement  related  to additional
royalty interest incentives if the company drills on certain leases.



                                     F-15
<PAGE>

During the year ended December 31, 2005, 2,325,588 shares of common  stock were
repurchased  and  retired  at  a  value  of  $651,165, and subscribed stock was
recorded for $272,610.

6,740 shares were issued as a final adjustment  to  the  original issuance from
the prior parent company's spin out, Nutek Inc.  Those shares  were  issued  to
unrelated parties who had not received their initial share distribution.

During  the  year  ended December 31, 2006, the Company issued 1,959,113 shares
upon  the exercise of  warrants  by  warrant  holders.   The  company  received
$1,124,531 in cash for these shares.

The  company  issued  4,299,191  shares  in  exchange  for  the  settlement  of
$2,535,578  of  debt  and accrued interest related to convertible debt that had
been issued. The shares  represented  45%  of  the  fully diluted shares of the
Company outstanding.

The company's total issued and outstanding shares was reduced by 316,500 shares
related  to shares canceled that were to be issued to  a  former  employee  and
related to the settlement of debt from the first quarter of 2005.

The company  issued  6,045 shares to consultants for services valued at $31,837
during the year.

On November 2, 2006, the  company signed a Letter of Intent for the purchase of
up  to  75%  working  interest   (WI)   and   60%  Royalty  Interest  (RI),  in
approximately 20,000 acres in the DJ basin  in  Northeast Colorado at a cost of
$15  million  if the full 75% working interest is  acquired.   Concurrent  with
signing  this  letter  of  intent,  the  Company  issued  2,419,335  shares  of
restricted common  stock  for consideration of $7,500,000 based upon a five day
closing average of the South  Texas  Oil Company shares as agreed upon when the
original Letter of Intent was signed.

NOTE 8 - 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 December 31, 2006
are as follows:

							2006	       2005
                                                  ---------------   -----------

<TABLE>
<CAPTION>
<S>						<C>
Deferred tax assets:
  Net operating loss carryforwards                $       621,144      524,127
                                                  ---------------   -----------
                                                          621,144      524,127
Deferred tax liabilities:
  Depreciation and amortization                          (204,347)    (428,561)
                                                  ---------------   -----------
                                                         (204,347)    (428,561)
                                                  ---------------   -----------
  Net deferred tax asset                                  416,797       95,566
  Less valuation allowance                               (416,797)     (95,566)
                                                  ---------------   -----------

                                                  $            --    $      --
                                                  ===============   ===========

</TABLE>


                                     F-16
<PAGE>

At  December 31, 2006, the Company  had  federal  net  operating  loss  ("NOL")
carryforwards  of  approximately  $1,697,493.   Federal  NOLs could, if unused,
begin to expire in 2021 through 2023.

The  valuation allowance for deferred tax assets as of December  31,  2006  and
2005 was $416,797 and $95,566, respectively.

The reconciliation  of  the  effective income tax rate to the federal statutory
rate for the years ended December 31, 2006 and 2005 is as follows:

<TABLE>
<CAPTION>
<S>						<C>
                                             2006          2005
                                          ----------    ---------
Federal income tax rate                       (34.0%)      (34.0%)
State tax, net of federal benefit                --            --
Loss for which no federal benefit was
  received                                     34.0%        34.0%
                                          ----------    ---------
Effective income tax rate                       0.0%         0.0%
                                          ==========    =========

</TABLE>


NOTE 9 - WARRANTS AND OPTIONS

Prior to January 1, 2006, the  company  would  expense  the  intrinsic value of
stock  options  issued.   In  prior  years, the company has never issued  stock
options which with a strike price less than the then current market value.

In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," which
establishes standards for transactions  in which an entity exchanges its equity
instruments for goods or services.  This  standard  replaces  SFAS  No. 123 and
supersedes  APB  Opinion No. 25, Accounting for Stock-based compensation.  This
Standard requires  a  public  entity  to  measure the cost of employee services
received in exchange for an award of equity instruments based on the grant-date
fair value of the award. This eliminates the  exception  to  account  for  such
awards  using  the  intrinsic method previously allowable under APB Opinion No.
25. SFAS No. 123(R) is  effective  for  interim  or  annual  reporting  periods
beginning on or after June 15, 2005. The Company has adopted SFAS 123 (R) as of
January  1,  2006.  There was no significant impact on our financial statements
due to the adoption of SFAS 123(R).

There were no options granted to officers or directors in 2005 or 2006.

The  options and  warrants  issued  in  2004  expire  in  April  2014  and  are
exercisable  at  prices  from $0.46 to $0.50 per option or warrant.  See Note 2
for pro-forma information and calculations.














                                     F-17
<PAGE>

The following is a schedule  of  the  activity  relating to the Company's stock
options and warrants.


                          	Year Ended                Year Ended
                            December 31, 2006        December 31, 2005
                            -----------------        -----------------
                               Weighted Avg.            Weighted Avg.
                             Shares    Exercise      Shares    Exercise
                            (x 1,000)    Price       (x1,000)    Price
                            ---------  --------       --------  --------
Options and warrants
  outstanding at
  beginning of year               825  $   0.48            650   $   0.48

Granted:
  Options                           -  $      -            175   $   0.46
  Warrants                          -  $      -              -   $      -
Exercised                           -  $      -              -   $      -
Expired:
Warrants                           (-) $      -              -   $      -
                            ---------  --------       --------   --------
Options and warrants
  outstanding and
  exercisable at end
  of period                    	  825  $   0.48            825   $   0.48
                                       ========                  ========

Weighted average fair
  value of options and
  warrants granted during
  the year                             $     --                  $21,221

The following table summarizes information about  the  Company's  stock options
and warrants outstanding at December 31, 2006, all of which are exercisable.

                 Weighted Average
  Range of           Number      	Remaining       Weighted Average
Exercise Prices    Outstanding      Contractual Life     Exercise Price
---------------	 ----------------   ----------------	----------------
$ 0.46 - 0.50        107,550            4.2 years           $ 0.477


NOTE 10 - ENVIRONMENTAL MATTERS

Various   federal   and  state  authorities  have  authority  to  regulate  the
exploration and developments of oil and gas and mineral properties with respect
to environmental matters.  Such laws and regulations, presently in effect or as
hereafter promulgated, may significantly  affect  the  cost  of its current oil
production  and  any exploration and development activities undertaken  by  the
Company and could  result in loss or liability to the Company in the event that
any such operations are subsequently deemed inadequate for purposes of any such
law or regulation.






                                     F-18
<PAGE>

NOTE 11 - SUBSEQUENT EVENTS

On January 31, 2007,  South  Texas  Oil  Company received a 3 year, $15 million
revolving credit facility.  The credit facility  will  be  used  to further the
company's business strategy.

The credit facility of prime plus 4% will be used for acquisitions,  additional
well workovers and expanded drilling programs.

The  lender will receive 1,000,000 warrants at $10.00 per share of South  Texas
Oil Company common stock as part of the funding commitment.

South  Texas  Oil Company intends to purchase up to a 75% working interest (WI)
and 60% royalty  interest  (RI)  in  20,000  acres in the DJ basin in Northeast
Colorado being offered at a cost of approximately  $15  million  for  a 75% WI.
The purchase will be undertaken by issuing approximately 4,8 million shares  of
South  Texas  Oil  Company  restricted  common  stock.   The  closing  of  this
transaction  is  contingent on the outcome of the evaluation by two independent
engineers and a fairness opinion being issued.

On March 7, 2007, South Texas Oil Company agreed  to acquire all  the  oil  and
gas interests and certain related assets of Leexus Properties Corp. South Texas
Oil Company intends to  issue 2,000,000  shares  of  restricted  common  stock,
provide  $3  million in cash and a note for $4 million as consideration for the
purchase.

On March 26, 2007,  South  Texas  Oil Company agreed to purchase a drilling rig
from TeXana Drilling, LLC for an amount of $1,065,418.


NOTE 12 - UNAUDITED SUPPLEMENTARY OIL AND NATURAL GAS INFORMATION

The following supplementary information  is presented in compliance with United
States Securities and Exchange Commission ("SEC") regulation and FASB Statement
No.     69,  "Disclosures  About  Oil  and  Gas  Producing   Activities."   The
supplementary  information  is  not  a  required  part  of  the basic financial
statements and therefore not covered by the report of the Company's independent
auditors.

Proved oil and gas reserves are the estimated quantities of crude  oil, natural
gas,  and natural gas liquids which geological and engineering data demonstrate
with reasonable  certainty  to  be  recoverable  in  future  years  from  known
reservoirs  under existing economic and operating conditions.  Proved developed
oil and gas reserves  are  reserves  expected  to be recovered through existing
wells with current equipment and operating methods.  The  reserve data is based
on   studies  prepared  by  the  Company's  independent  consulting   petroleum
engineers.  Reserve  estimates  require  substantial  judgment  on  the part of
petroleum  engineers  resulting in imprecise determinations, particularly  with
respect to new discoveries.  Accordingly,  it is expected that the estimates of
reserves will change as future productions and  development  information become
available. At December 31, 2005, the Company's proved oil and  gas reserves are
located in Texas. The following analysis relates only to the wells  in  the Big
Foot  and  Kyote fields and does not address the reserves in the Somerset wells
which were acquired during 2005.












                                     F-19
<PAGE>

                            SOUTH TEXAS OIL COMPANY
                      SUPPLEMENTARY INFORMATION REGARDING
                       OIL AND GAS PRODUCING ACTIVITIES
                FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
                                   UNAUDITED

      The following  supplementary  oil  and  gas  information  is  provided in
accordance with Statement of Financial Accounting Standards No. 69, Disclosures
about Oil and Gas Producing Activities (SFAS 69). The Company has properties in
only one reportable geographic area, all of which are oil properties.

1. CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES

                                          2006      2005
                                          ----      ----

  Proved oil and gas properties       $2,892,358 $2,459,133
  Unproved oil and gas properties      1,238,950    389,369
  Support equipment, proved properties        --         --
                                       ---------  ---------
                                       4,131,308  2,848,502
  Accumulated depreciation and
   depletion                          (1,020,785)  (650,976)
                                       ---------  ---------
  Net capitalized costs               $3,110,523 $2,197,526
                                       =========  =========

2. COSTS INCURRED IN OIL AND GAS PRODUCING ACTIVITIES FOR ABOVE REFERENCED
PERIODS

                                     2006        2005
                                     ----        ----

  Acquisition of proven properties   $433,225   $307,426

  Exploration costs                  $849,581   $   0

3. RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES FOR THE ABOVE
REFERENCED PERIODS
                                      2006         2005
                                  ----------   ----------

  Oil Sales - 100%                $  829,928   $  467,247
  Oil Sales - Royalty Share         (276,870)    (188,430)
                                  ----------   ----------
  Oil and gas sales                  553,058      278,817
  Lease operating income                   -            -
  Production taxes                   (32,606)     (16,338)
  Production costs                  (336,490)    (161,019)
  Exploration expenses                     -            -
  Depreciation and depletion        (400,968)    (206,073)
  Income tax expense                       -            -
                                  ----------   ----------
  Results of operations for oil
   and gas producing activities
   (excluding corporate overhead
   and financing costs)           $ (217,006)  $ (104,613)
                                  ==========   ==========

                                     F-20
<PAGE>

4.  RESERVE QUANTITY INFORMATION

       The  following  estimates  of  proved  developed reserve quantities  are
estimates only, and do not purport to reflect realizable  values or fair market
value  of  the  Company's reserves. They are presented in accordance  with  the
guidelines established by the S.E.C. and disclosure requirements promulgated by
SFAS 69. The Company  emphasizes the reserve estimates are inherently imprecise
and  that  estimates of new  discoveries  are  more  imprecise  than  those  of
currently producing  oil  and  gas properties. Accordingly, these estimates are
expected  to  change  as  future information  becomes  available.  All  of  the
Company's reserves are located in southern Texas.

        Proved  reserves  are   estimated  reserves  of  crude  oil  (including
condensate  and  natural gas liquids)  and  natural  gas  that  geological  and
engineering data demonstrate  with  reasonable  certainty  to be recoverable in
future  years  from  known  reservoirs  under  existing economic and  operating
conditions.  Proved  developed  reserves are those  expected  to  be  recovered
through existing wells, equipment,  and  operating method. The Company's proved
developed and undeveloped reserves and changes  in  them during the periods are
as follows.


Proved Developed and Undeveloped Reserves:

                                               Oil             Gas
                                              (BBLS)          (MCF)
                                              ------          -----
Purchase of Minerals in Place(02/22/00)      698,290            -
     Production, 2000                        (10,270)           -
     Production, 2001                        (11,283)           -
     Production, 2002                         (5,554)           -
                                             -------          -----
     Reserves at December 31, 2002           671,183            -
     Revisions of Previous Estimates        (435,092)           -
     Purchase of minerals in place                 -            -
     Production, 2003                         (7,586)           -
                                             -------          -----
     Reserves at December 31, 2003           228,505            -
                                             -------          -----
     Revisions of Previous Estimates          (2,337)           -
     Purchase of minerals in place                 -            -
     Production, 2004                         (4,972)           -
                                             -------          -----
     Reserves at December 31, 2004           221,196            -
                                             -------          -----
     Revisions of Previous Estimates        (167,508)           -
     Purchase of minerals in place                 -            -
     Production, 2005                         (5,258)           -
                                             -------          -----
     Reserves at December 31, 2005            48,430            -
                                             -------          -----
     Revisions of Previous Estimates          21,774            -
     Purchase of minerals in place                 -            -
     Production, 2006                        (11,557)           -
                                             -------          -----
     Reserves at December 31, 2006            58,647            -
                                             =======          =====


                                     F-21
<PAGE>

Proved Developed Reserves:
                                               Oil             Gas
                                              (BBLS)          (MCF)
                                              ------          -----
Purchase of Minerals in Place (02/22/00)      95,640          -
     Production, 2000                        (10,270)           -
     Production, 2001                        (11,283)           -
     Production, 2002                         (5,554)           -
                                             -------          -----
     Reserves at December 31, 2002            68,533            -
     Revisions of Previous Estimates         (28,192)           -
     Purchase of minerals in place                 -            -
     Production, 2003                         (7,586)           -
                                             -------          -----
     Reserves at December 31, 2003            32,755            -
     Revisions of Previous Estimates          (2,337)           -
     Purchase of minerals in place                 -            -
     Production, 2004                         (4,972)           -
                                             -------          -----
     Reserves at December 31, 2004            25,445            -
                                             -------          -----
     Revisions of Previous Estimates          28,243            -
     Purchase of minerals in place                 -            -
     Production, 2005                         (5,258)           -
                                             -------          -----
     Reserves at December 31, 2005            48,430            -
                                             -------          -----
     Revisions of Previous Estimates          21,774            -
     Purchase of minerals in place                 -            -
     Production, 2006                        (11,557)           -
                                             -------          -----
     Reserves at December 31, 2006            58,647            -
                                             =======          =====


      Based on a revised Evaluation of Proved Reserves on November 23, 2004 and
January 31, 2005, as well as an Evaluation of Proved Reserves by an independent
petroleum engineering firm as of December 31, 2005 and 2006 the proved reserves
have been revised to account for changes in economic factors and the historical
net  oil  production generated. The engineer's report analyzed  the  historical
production and investments made by the company during the period since the last
report and  then  along with evaluating the current economic factors the report
was  revised  accordingly.   In   2002,   the   Company's  production  declined
significantly, as the Company was in a transition period between pumper's. As a
result of this decline the reserve estimates have  been  adjusted  downward  to
reflect  how  this decline would affect the reserves if production continued at
the reduced levels.  While our year end 2005 assumptions used a higher price of
oil, the reserves had revised lower due to lower production in prior years.

 5.  STANDARDIZED MEASURES OF DISCOUNTED FUTURE NET CASH FLOWS AND CHANGES
THEREIN RELATING TO PROVED OIL AND GAS RESERVES AT THE ABOVE REFERENCED DATE

       Statement of Financial  Accounting  Standards No. 69, "Disclosures about
Oil  and  Gas  Producing Activities," prescribes  guidelines  for  computing  a
standardized measure  of  future  net cash flow and changes therein relating to
estimated proved reserves. The Company has followed these guidelines, which are
briefly discussed in the following paragraphs.

                                     F-22
<PAGE>

       Future cash inflows and future  production  and  development  costs  are
determined  by  applying  year-end  oil  prices  and  costs  to  the  estimated
quantities  of  oil  to be produced. Estimated future income taxes are computed
using current statutory  income tax rates including consideration for estimated
future depletion.  The resulting  future  net cash flows are reduced to present
value amounts by applying a 10% annual discount factor.

        The  assumptions used to compute the  standardized  measure  are  those
prescribed  by  the  Financial Accounting Standards Board and, as such, do  not
necessarily reflect the Company's expectations of actual revenues to be derived
from those reserves nor  their  present  worth. The limitations inherent in the
reserve quantity  estimation  process,  as  discussed  previously,  are equally
applicable  to the standardized measure computations since these estimates  are
the basis for the valuation process.

       The following  summary  sets  forth  the Company's future net cash flows
relating  to  proved oil and gas reserves based  on  the  standardized  measure
prescribed in Statement of Financial Accounting Standards No. 69:


                                      2006             2005
Future cash inflows               $ 3,097,500     $  2,581,000
Future production costs            (1,662,500)      (1,279,100)
Future development costs             (  1,200)      (     --  )
Future income tax provision         ( 216,000)        (179,100)
                                  -----------     -------------
Future net cash flows               1,217,800        1,122,800
  Effect of 10% discount factor      (357,600)        (331,800)
                                  -----------     -------------
Standardized measure of discounted
  future net cash flows           $   860,200     $    791,000
                                  ===========     ============

Year-end oil prices  used in calculating the standardized measure of discounted
future net cash flows for 2006 were $39.48 per barrel.

        The  principal sources  of  changes  in  the  standardized  measure  of
discounted future  net  cash  flows are as follows for the period from December
31, 2005 to December 31, 2006:

                                                    2006        2005

Standardized measure, beginning of period        $ 791,000   $(184,510)
Purchase of reserves in place                            0           0
Sales of oil produced, net of production costs    (  3,300)   (117,797)
Net changes in prices and production costs        (383,400)   (190,022)
Net change in estimated future development costs   ( 1,200)  3,146,000
Net change in income taxes                               0           0
Revisions of previous quantity estimates           457,100  (1,862,671)
Accretion of discount                                    0           0
Other                                                    0           0
                                                 ---------   ---------
Standardized measure, end of period              $ 860,200   $ 791,000
                                                 =========   =========




                                     F-23


<PAGE>




<PAGE>

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

      On  February  8,  2007  the  Registrant's   independent   auditor,  Larry
O'Donnell, CPA, P.C. ("Larry O'Donnell, CPA") was dismissed.

      The  reports  of  Larry  O'Donnell,  CPA  as  of and for the years  ended
December 31, 2005 and 2004, did not contain any adverse  opinion  or disclaimer
of opinion.

      The  Board  of  Directors  has approved the dismissal of Larry O'Donnell,
CPA.

      During the fiscal years ending December 31, 2005 and 2004, and during the
subsequent interim periods through  the  date  of  the dismissal, there were no
disagreements with Larry O'Donnell, CPA on any matter  of accounting principles
or practices, financial statement disclosure, or auditing scope or procedures.

      Larry O'Donnell, CPA has not advised the Company of  any events described
in Item 304(a)(1)(iv)(B) 1 through 3 of Regulation S-B that occurred during the
fiscal year ended December 31, 2005 and the periods preceding such change.

New Independent Accountants

      The  Registrant  engaged Causey Demgen & Moore, Inc. as  its  independent
auditors to provide the  requisite  audit  services  for the Company. This firm
commenced its engagement effective February 8, 2007 as  requested  and approved
by the Company's Board of Directors. The Registrant did not consult with Causey
Demgen & Moore, Inc. on any matter at any time prior to the engagement.

      (See South Texas Oil Company's report on Form 8-K dated February 28, 2007
item 5.02)

ITEM 8A.  CONTROLS AND PROCEDURES.

      As of the end of the period covered by this report, the Company conducted
an  evaluation,  under the supervision and with the participation of the  Chief
Executive Officer  and  Chief  Financial  Officer,  of the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e)  and 15d-15(e) under the
1934  Act.  Based  on  this evaluation, the Chief Executive Officer  and  Chief
Financial Officer concluded  that  there  was  a  deficiency  in  the Company's
disclosure controls and procedures relating to the reporting and disclosure  of
the  value  of  the  asset  retirement  obligation  and  the calculation of the
depletion.   This  deficiency  was  communicated  to the Company's  independent
registered  public  accountants.   There  were also some  deficiencies  in  the
December  2006  financial  statements  that were  submitted  to  the  Company's
auditors and these were also corrected.  After  notice  from the auditors,  the
Company  also  performed  additional procedures in completing  these  financial
statements for the year ended  December  2006  to  ensure  that the amounts and
disclosures  included  were  fairly  presented  in  all  material  respects  in
accordance with GAAP.

       We  also  maintain a system of internal control over financial reporting
(as defined in Rules  13a-15(f)  and  15d-15(f)) designed to provide reasonable
assurance regarding the reliability of  financial reporting and the preparation
of financial statements for external purposes  in  accordance  with  accounting
principles generally accepted in the United States of America. During  our most
recent fiscal quarter, there have been no changes in our internal control  over
financial  reporting  that  occurred  that  have  materially  affected  or  are
reasonably  likely  to  materially  affect  our internal control over financial
reporting.

                                      33
<PAGE>

ITEM 8B.  OTHER INFORMATION.

      None.

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

Directors and Executive Officers

      The  following  table  sets  forth information  regarding  our  executive
officers, certain other officers and directors as of December 31, 2006:

      Name                  Age   Position/Office        Served Since

      Murray N. Conradie    39    Chairman/President/CEO April 1999
      Edward Shaw           44    COO                    December 2005
      Conrad Humbke         71    Director               November 2004

      The following is a brief description  of  the  business background of the
directors and executive officers of South Texas Oil Company:

Murray N. Conradie - President/CEO and Chairman of the Board

      Mr. Conradie has been the CEO and Chairman of the Board and a Director of
South Texas Oil Company since April 1999.  He was also  the CEO and Chairman of
the Board and a Director of Datascension, Inc., a public company trading on the
OTCBB, since April 1999, the parent company of South Texas  Oil  Company, prior
to the spin-off.  He resigned from Datascension Inc, on April 1, 2005  to focus
more  attention on South Texas Oil Company.  Mr. Conradie has several years  of
experience in creating and developing start-up enterprises and has a background
in Law and Accounting.

Marlene Hutcheson - CFO

      On  March  2,  2007,  South  Texas  Oil  named Marlene Hutcheson as Chief
Financial Officer. Marlene Hutcheson is a licensed  CPA in the State of Nevada.
Ms. Hutcheson completed her undergraduate studies at  Arizona  State University
in  December  1994  and  earned  her  Master  of  Business Administration  from
University of Phoenix in June 2002.

      Ms.  Hutcheson's  professional  experience  includes   work   in   public
accounting  as well in private industry. Ms. Hutcheson worked for two different
public accounting  firms  in  Las  Vegas, Nevada from February 2000 through May
2004. She then served as assistant controller  for  one of the nation's largest
custom electronic display manufacturers from May 2004  through  February  2006.
Ms.  Hutcheson  returned  to  public  accounting in February 2006 and currently
serves as an audit manager of a CPA firm in Henderson, Nevada.

      Ms.  Hutcheson  has  never been a party  any  transaction  or  series  of
transactions with the registrant  involving  an amount in excess of $60,000 and
no such transaction is, or series of transactions are, currently proposed.

      (See South Texas Oil Company's report on Form 8-K dated February 28, 2007
item  5.02  and  Exhibit  10.16  Executive  Compensation  Agreement  -  Marlene
Hutcheson)


                                      34
<PAGE>

Edward Shaw - COO/Director

       Effective  December  1, 2005 Mr. Edward  Shaw  was  appointed  as  Chief
Operating Officer of South Texas Oil Company to head field operations in Texas.
Mr. Shaw is qualified as both a mechanical and electrical engineer with over 10
years of experience in Saudi  Arabia  and  has  spent  the  last 4 years in New
Zealand where he was researching and developing methods of monitoring oil wells
to  optimize  production,  including  using  existing products integrated  with
emerging telemetry technologies.

Conrad Humbke - Director

       Mr. Humbke has many years experience in the oil and gas industry and has
served  both  as a director and officer of oil and  gas  companies  which  also
included oil and mining exploration.  Mr. Humbke has been in retirement for the
past 5 years.

Significant Employees

       South Texas  Oil  Company  has not identified any employee who is not an
executive who is expected to make a significant contribution to the business.

Family Relationships

      There are no family relationships among the directors, executive officers
or persons nominated or chosen by South  Texas  Oil Company to become directors
or executive officers.

Legal Proceedings

      None  of  South  Texas  Oil Company's 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 other wise
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.

      None of South Texas Oil Company's officers or directors, nor to the
knowledge of South Texas Oil Company, any of South Texas Oil Company's 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




                                      35
<PAGE>
(cont)
      -    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.

Committees

      South  Texas  Oil  Company  does  not  have any audit, compensation,  and
executive committees. Because the Board of Directors currently consists of only
three members, South Texas Oil Company does not  have  a  standing  nominating,
compensation  or audit committee. Rather, the full Board of Directors  performs
the functions of these committees.  South Texas Oil Company does not believe it
is necessary for  its Board of Directors to appoint such committees because the
volume of matters that  come  before  its  Board of Directors for consideration
permits each Director to give sufficient time  and attention to such matters to
be involved in all decision making.

Conflicts of Interest

      The officers and directors of South Texas  Oil Company are now and may in
the future become shareholders, officers or directors  of other companies which
may be engaged in business activities similar to those conducted by South Texas
Oil Company. Accordingly, additional direct conflicts of  interest may arise in
the future with respect to such individuals acting on behalf of South Texas Oil
Company or other entities. Moreover, additional conflicts of interest may arise
with respect to opportunities which come to the attention of  such  individuals
in  the performance of their duties or otherwise. South Texas Oil Company  does
not currently  have  a  right of first refusal pertaining to opportunities that
come to management's attention  insofar  as  such  opportunities  may relate to
South Texas Oil Company's proposed business operations.

      The officers and directors are, so long as they are officers or directors
of  South  Texas Oil Company, subject to the restriction that all opportunities
contemplated by South Texas Oil Company's plan of operation which come to their
attention, either  in  the  performance of their duties or in any other manner,
will be considered opportunities  of,  and be made available to South Texas Oil
Company and the companies that they are  affiliated  with  on an equal basis. A
breach  of  this requirement will be a breach of the fiduciary  duties  of  the
officer or director.  If  South Texas Oil Company or the companies in which the
officers and directors are  affiliated with both desire to take advantage of an
opportunity, then said officers  and  directors  would abstain from negotiating
and voting upon the opportunity. However, all directors  may still individually
take advantage of opportunities if South Texas Oil Company should decline to do
so.  Except  as set forth above, South Texas Oil Company has  not  adopted  any
other conflict of interest policy with respect to such transactions.

Compliance with Section 16(a) of the Exchange Act

      Section  16(a)  of  the  Securities  Exchange  Act  of  1934 requires our
directors and executive officers, and persons who beneficially  own  more  than
ten percent of a
registered class of our equity securities (referred to as "reporting persons"),
to  file  with  the  Securities  and  Exchange  Commission  initial  reports of
ownership  and  reports  of  changes  in  ownership of common stock.  Reporting
persons are required by Commission regulations to furnish us with copies of all
Section 16(a) forms they file.


                                      36
<PAGE>

      Based solely upon a review of Forms 3,  4  and  5 furnished to us, we are
not aware of any person who at any time during the fiscal  year  ended December
31, 2005, was a director, officer, or beneficial owner of more than ten percent
of our common stock, who failed to file, on a timely basis, reports required by
Section 16(a) of the Securities Exchange Act of 1934 during such fiscal year.

Code of Ethics

      We have adopted a code of ethics that applies to our executive  officers,
including our Chief Executive Officer and Chief Financial Officer.

Indemnification of Directors and Officers.

The  By-laws  of  South  Texas Oil Company state that to the extent allowed  by
Nevada State law, as same may be amended, and subject to the required procedure
thereof, the corporation shall indemnify any person who was or is a party of is
threatened to be made a party  to  any threatened, pending or completed action,
suit or proceeding, whether civil, criminal,  administrative  or  investigative
(other than an action by or in the right of the corporation) by reason  of  the
fact  that  he  is  or  was  a  director,  officer,  employee  or  agent of the
corporation,  or  is  or  was  serving at the request of the corporation  as  a
director, officer, employee or agent of another corporation, partnership, joint
venture,  trust or other enterprise,  against  expenses  (including  attorneys'
fees), judgments,  fines and amounts paid in settlement actually and reasonably
incurred by him in connection  with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation,  and with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its
equivalent, shall not of itself, create a  presumption  that the person did not
act in good faith and in a manner which he reasonably believed  to be in or not
opposed  to  the  best  interests of the corporation, and with respect  to  any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.

ITEM 10.  EXECUTIVE COMPENSATION.

Compensation of Executive Officers

      The following table  sets  forth  the aggregate cash compensation paid by
South Texas Oil Company for services rendered  during  the periods indicated to
its directors and executive officers:

                       SUMMARY COMPENSATION TABLE

Name & Position      Fiscal Year     Salary       Bonus     Other Compensation
---------------      -----------     ------       -----     -----------------
Murray N. Conradie     2004         24,000         -0-            -0-
Chairman/CEO           2005        150,000         -0-            -0-
                       2006        165,000         -0-            5,000 (2)

Edward Shaw            2004           -0-          -0-            -0-
COO                    2005          4,000         -0-         100,000
shares(1)
                       2006         72,000         -0-            8,300 (3)

      (1) Mr. Shaw received 100,000 shares of restricted  common stock of South
           Texas Oil Company as an incentive payment as part  of his Employment
           Agreement.

                                      37
<PAGE>
(cont)
      (1) Mr. Conradie received a $500 per month vehicle allowance.

      (2) Mr. Shaw received a $445 per month vehicle allowance  and  a $245 per
          month allowance for expenses as part of his Employment Agreement.

Common Stock

      The Officers have not received any common stock in compensation for their
services, other than the unpaid salary they have converted to common stock.

Employment Agreements

      On  April  1,  2004,  we entered into an employment agreement with Murray
Conradie. The term of employment  is  five  (5)  years.  Mr. Conradie serves as
President,  CEO, Chairman and Director. We agreed to pay Mr.  Conradie  a  base
salary of $24,000  per annum for the first year of employment, increasing based
on performance of South  Texas  Oil  Company  and  time devoted solely to South
Texas Oil Company. In addition to the cash compensation earned by Mr. Conradie,
we  granted  Mr.  Conradie an option to purchase shares  of  our  common  stock
according to the Executive Stock Option Plan.

      As of April 1,  2005,  Mr.  Conradie  devotes  100%  of  his  time to the
management and control of South Texas Oil Company and per Section 3(j)  of  his
Employment Agreement with Datascension Inc., the former parent company of South
Texas Oil Company and per Section 5.2(f) of his Employment Agreement with South
Texas Oil Company, his Base Salary has been increased to $150,000 per annum and
the items in Section 5.2(a-f) have been eliminated.

      (See   Exhibit   10.30   Employment   Agreement  Murray  N.  Conradie  of
Datascension Inc, and Exhibit 10.3 Employment  Agreement  Murray N. Conradie of
South Texas Oil Company.)

      On December 1, 2005, we entered into an employment agreement  with Edward
Shaw.  The  term  of  employment  is  five  (5) years. Mr. Shaw serves as Chief
Operational Officer. We agreed to pay Mr. Shaw  a  base  salary  of $48,000 per
annum  for  the  first  year of employment, increasing based on performance  of
South Texas Oil Company and  time devoted solely to South Texas Oil Company. In
addition to the cash compensation  earned  by Mr. Shaw, we granted Mr. Conradie
an option to purchase shares of our common stock  according  to  the  Executive
Stock Option Plan.



















                                      38
<PAGE>

Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Values

      The following table sets forth the options granted in 2004 to each of the
directors and executive officers:

     Option/SAR Grants in Prior Fiscal Years (Individual Grants):

                      Number of      Percent of total
                      Securities          Options
                      Underlying        granted to                  Exercise or
                        Options      employees in    base price   Expiration
    Name               Granted         fiscal year     ($/Share)        date
    -----            ------------   ----------------   ----------   -----------

Murray N. Conradie      150,000 (1)       18.2           $0.46        4/1/09
                        200,000 (1)       24.2           $0.50        4/1/14

Jason F. Griffith       100,000 (1)       12.1           $0.46        4/1/09
                        100,000 (1)       12.1           $0.50        4/1/14

Edward Shaw             100,000 (2)       12.1           $0.46       12/1/10
                        100,000 (2)       12.1           $0.50       12/1/15

Conrad Humbke            75,000 (1)       9.09           $0.46       11/2/09


   (1) - issued in 2004
   (2) - issued in 2005


      There  were  options  issued  to officers in April of 2004.  Compensation
cost for options granted has not been  recognized in the accompanying financial
statements because the exercise prices exceeded  the  current  market prices of
South Texas Oil Company's common stock on the dates of grant. The  options  and
warrants  expire in April 2010 and 2015 and are exercisable at prices from $.46
to $.50 per option or warrant, respectively.

Compensation of Directors

      There  were no arrangements pursuant to which any director of South Texas
Oil Company was  compensated through December 31, 2006 for any service provided
as a director. In  addition,  no  such  arrangement  is  contemplated  for  the
foreseeable  future as South Texas Oil Company's only directors are its current
executive officers.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Management and Certain Beneficial Owners

      The following  table  sets  forth  information  as  of  the  date of this
Registration  Statement  certain  information  with  respect  to the beneficial
ownership  of  the  Common  Stock  of South Texas Oil Company concerning  stock
ownership  by  (i)  each  director, (ii)  each  executive  officer,  (iii)  the
directors and officers of South  Texas  Oil  Company  as a group, (iv) and each
person known by South Texas Oil Company to own beneficially more than five (5%)
of the Common Stock.  Unless otherwise indicated, the owners  have  sole voting
and  investment  power  with  respect  to their respective shares.  The mailing
address for each of the persons indicated is our corporate headquarters.





                                      39
<PAGE>

      Beneficial ownership is determined  under the rules of the Securities and
Exchange Commission. In general, these rules  attribute beneficial ownership of
securities to persons who possess sole or shared voting power and/or investment
power  with  respect  to  those securities and includes,  among  other  things,
securities that an individual  has  the right to acquire within 60 days. Unless
otherwise indicated, the stockholders  identified  in  the following table have
sole  voting  and  investment  power  with  respect  to  all  shares  shown  as
beneficially owned by them.

Title of  Name and Address        	 Amount and Nature      Percent of
Class     of Beneficial Owner     	 of Beneficial Owner    Class
--------  --------------------------	 -------------------    ----------
Common    Murray N. Conradie             President/CEO             6.18%
          2802 Flintrock Trace, #252     Chairman
          Austin, Texas 78738            502,517 Shares

Common    Edward Shaw                    COO                   	   2.21%
          2802 Flintrock Trace, #252     102,000 Shares
          Austin, Texas 78738

Common    Conrad Humbke                  Director                  0.55%
          2802 Flintrock Trace, #252     0 Shares
          Austin, Texas 78738

Common    Officers and Directors
          as a Group                     604,517 Shares            8.74%

      Mr. Conradie, Mr. Shaw, and Mr. Humbke have options to purchase  a  total
of  425,000  shares  of South Texas Oil Company's Common Stock at $.46 any time
before March 31, 2009;  and  a  total of 400,000 shares at $.50 any time before
March 31, 2014.

      The  percentage  ownership  calculations  listed  above  are  based  upon
13,444,743 shares of common stock being  outstanding,  and  no  options granted
being exercised as of December 31, 2006.

Persons Sharing Ownership of Control of Shares

      Management  has  no  knowledge  of  the existence of any arrangements  or
pledges of South Texas Oil Company's securities which may result in a change in
control of South Texas Oil Company.

      No person owns or shares the power to  vote  ten percent (10%) or more of
South Texas Oil Company's securities.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    Mr. Conradie received 100,000 shares of restricted  common  stock  of South
Texas  Oil  Company, in 2002, per Section 3(g) of his employment contract  with
Nutek Inc., the parent company, upon the spin-off of South Texas Oil Company as
a separate trading  entity.   (See Exhibit 10.16 Employment Agreement Murray N.
Conradie of Nutek Inc.)

    South Texas Oil Company also has a note payable to Murray Conradie, related
to the purchase of wells during  the  2nd  quarter  of  2005  with a balance of
$44,402  at  December  31,  2006.  This note is paid only from a percentage  of
production of the related wells.


                                      40
<PAGE>

      South Texas Oil 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 Mr. Conradie.  The monthly
rental amount is $750.

      South  Texas  Oil  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 Mr. Conradie.  South Texas Oil
Company pays a monthly rental amount of $1,286 for usage of this equipment.

      A material relationship exists between  JGM  Oil  Investments,  LLC  from
which  the  Somerset leases were purchased on April 1, 2005 and South Texas Oil
Company in so  far  as  Mr.  Conradie the President/CEO and a Director of South
Texas Oil Company has an ownership interest in JGM Oil Investments, LLC.

      A material relationship  exists  between  Horizon  Ridge Oil Company, the
operator of record with the Texas Rail Road Commission for  the Somerset leases
which were purchased on April 1, 2005 and South Texas Oil Company  in so far as
Mr. Conradie the President/CEO and a Director of South Texas Oil Company has an
ownership  interest in Horizon Ridge Oil Company. A nominal amount is  paid  to
Horizon Ridge  Oil  Company each month to cover the Rail Road Commission Surety
bond for these leases  as well as the reporting requirements with the Rail Road
Commission. The amount to date has averaged less than $1,100 per month.

    Other Material Transactions.

      With  the  exception  of  the  above mentioned transactions,  there  have
been no material transactions,  series   of  similar transactions  or currently
proposed  transactions  to  which  South   Texas   Oil Company or any  officer,
director, their immediate families or other beneficial  owner  is  a  party  or
has  a  material  interest  in  which  the amount exceeds $50,000.



                                      41
<PAGE>

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

(a)  Exhibits.

      The  following  documents  are  included or incorporated by reference  as
exhibits
to this report:

Exhibit 3. Articles of Incorporation and Bylaws.

    3.1 Articles of Incorporation*
    3.2 Bylaws*

Exhibit 10.Material Contracts

   10.1 Letter of Intent to Purchase Selected Assets from Clipper Operating
Company.*
   10.2 Purchase Agreement of Selected Assets from Nutek Inc.(1)
   10.3 Executive Compensation Agreement (Murray N. Conradie)(1)
   10.4 Executive Compensation Agreement (David Cummings)(1)
   10.5 Executive Compensation Agreement (Jason F. Griffith)(1)
   10.6 Executive Stock Option Agreement (Murray N. Conradie)(1)
   10.7 Executive Stock Option Agreement (David Cummings)(1)
   10.8 Executive Stock Option Agreement (Jason F. Griffith)(1)
   10.9 Executive Stock Option Agreement (Charles Snipes)(1)
   10.10 Qualified Equity Incentive Stock Option Plan(1)
   10.11 Contract for Services (Peter R. Maupin)(2)
   10.12 Contract for Services (Smitty's Pumping)(2)
   10.13 Executive Stock Option Agreement (Conrad Humbke)(3)
   10.14 Purchase Agreement - Mineral Acres(3)
   10.15 Executive Compensation Agreement (Edward B. Shaw)
   10.16 Executive Stock Option Agreement (Edward B. Shaw)
   10.17 Letter of Intent - Colorado Purchase
   10.18 Agreement for $15 Million Line of Credit (4)
   10.19 Executive Compensation Agreement (Marlene Hutchinson)(5)

   (1) Previously filed as an exhibit to South Texas Oil Company's Form 10-SB,
       filed April 30, 2004.

   (2) Previously filed as an exhibit to South Texas Oil Company's Amendment
       No. 2 to Form 10-SB, filed September 3, 2004.

   (3) Previously filed as an exhibit to South Texas Oil Company's Current
       Report to Form 8-K, filed April 7, 2005.

   (4) Previously filed as an exhibit to South Texas Oil Company's Current
       Report to Form 8-K, filed February 8, 2007.

   (5) Previously filed as an exhibit to South Texas Oil Company's Current
       Report to Form 8-K, filed March 6, 2007.

Exhibit 23.Consent of Experts and Counsel

   23.1 Consent of Larry O'Donnell, CPA, P.C., Certified Public Accountants.
   23.2 Consent of Causey Demgen & Moore, Inc., Certified Public Accountants.




                                      42
<PAGE>

Exhibit 31.Certifications required by Rule 13a-14(a) or Rule 15d-14(a)

    31.1 Certification of Chief Executive  Officer pursuant to 18 U.S.C.ss.1850
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

    31.2  Certification  of  Principal  Financial   Officer   pursuant  to  18
U.S.C.ss.1850 as adopted pursuant to Section 302 of the Sarbanes-Oxley  Act  of
2002.

Exhibit 32.Certifications  required  by  Rule  13a-14(b)  or Rule 15d-14(b) and
section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350

    32.1 Certification of Chief Executive Officer pursuant  to 18 U.S.C.ss.1850
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

    32.2  Certification  of  Principal  Financial  Officer  pursuant   to   18
U.S.C.ss.1850  as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.

(b)  Reports on Form 8-K

South Texas Oil Company's  report on Form 8-K dated February 7, 2006 items 5.02
and 9.01.

      On February 7, 2006, South  Texas  Oil  Company filed a Current Report on
Form 8-K, relating to the appointment of Mr. Edward Shaw as a Director of South
Texas Oil Company along with the resignation of  Mr.  Jason  Griffith  as Chief
Financial Officer and Director.

South Texas Oil Company's report on Form 8-K dated November 2, 2006, items 8.01
and 9.01.

      On  November  2, 2006, South Texas Oil Company filed a Current Report  on
Form 8-K, stating that  the  company  had  issued a news release reporting that
South Texas Oil Company has signed a Letter of Intent for the purchase of up to
75%  working  interest  (WI) and 60% royalty Interest  (RI),  in  approximately
20,000 acres in the DJ basin  in Northeast Colorado at a cost of $15 million if
the full 75% working interest is  acquired.   This transaction is subject to an
independent review of the Project by two independent  engineers  to be selected
by  South  Texas  and the issuance of a fairness opinion.  Closing will  be  no
later than 15 days  after  completion  of  satisfactory  independent review and
issuance of the said fairness opinion.

South Texas Oil Company's report on Form 8-K dated February 8, 2007 items 1.01,
8.01 and 9.01

      On February 8, 2007, South Texas Oil Company filed a  Current  Report  on
Form 8-K, stating that the company had received a 3 year, $15 million revolving
credit  facility.  The  credit  facility  will be used to further the company's
business strategy.  The credit facility of  prime  plus  4%  will  be  used for
acquisitions,  additional  well workovers and expanded drilling programs.   The
lender will receive 1,000,000  warrants  at $10.00 per share of South Texas Oil
Company common stock as part of the funding commitment.

South Texas Oil Company's report on Form 8-K  dated  March  6, 2007 items 4.01,
5.02 and 9.01.

      On March 6, 2007, South Texas Oil Company filed a Current  Report on Form
8-K,   relating  to  the  dismissal  of  Larry  O'Donnell,  CPA,  P.C.  as  the
Registrant's independent auditor, the engagement of Causey Demgen & Moore, Inc.
as its

                                      43
<PAGE>
(cont)
independent  auditors  to  provide the requisite audit services for the Company
and the appointment of Marlene Hutcheson as Chief Financial Officer.

South Texas Oil Company's report  on  Form 8-K dated March 14, 2007 items 2.01,
8.01 and 9.01.

      On March 14, 2007, South Texas Oil Company filed a Current Report on Form
8-K, stating that South Texas Oil Company has agreed to acquire all the oil and
gas interests and certain related assets  of  Leexus  Properties  Corp.   South
Texas Oil Company intends to issue 2,000,000 shares of restricted common stock,
provide  $3  million in cash and a note for $4 million as consideration for the
purchase.

ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

      For the  fiscal  years ended December 31, 2006, South Texas Oil Company's
principal accountant billed  $5,300, for the audit of South Texas Oil Company's
annual financial statements and  review  of  financial  statements  included in
South Texas Oil Company's Form 10-QSB filings.  For the year ended December 31,
2005,  South  Texas  Oil Company's principal accountant billed $5,300, for  the
audit of South Texas Oil  Company's  annual  financial statements and review of
financial statements included in South Texas Oil Company's Form 10-QSB filings.

Audit-Related Fees

      For the fiscal years ended December 31,  2006  and  2005, South Texas Oil
Company's  principal accountant billed $0 and $0, respectively,  for  assurance
and related  services  that  were  reasonably related to the performance of the
audit or review of South Texas Oil Company's  financial  statements  outside of
those fees disclosed above under "Audit Fees".

Tax Fees

      For  the  fiscal years ended December 31, 2006 and 2005, South Texas  Oil
Company's  principal  accountant  billed  $0  and  $0,  respectively,  for  tax
compliance, tax advice, and tax planning services.

All Other Fees

      For the  fiscal  years  ended December 31, 2006 and 2005, South Texas Oil
Company's principal accountant billed $0 and $0, respectively, for products and
services other than those described above.

Pre-approval Policies and Procedures

      Prior to engaging South Texas  Oil  Company's  accountants  to  perform a
particular  service,  South  Texas Oil Company's board of directors obtains  an
estimate for the service to be performed. The board of directors, in accordance
with procedures for South Texas  Oil  Company,  approved  all  of  the services
described above prior to the services being performed.







                                      44
<PAGE>

SIGNATURES

      In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                  South Texas Oil Company

                                  /s/ Murray N. Conradie
                                  ----------------------
                                  Murray N. Conradie,
                                  President, Chairman and Director
                                  (Principal Executive Officer)

                                  /s/ Marlene Hutcheson, CPA
                                  ----------------------
                                  Marlene Hutcheson,
                                  Chief Financial Officer
                                  (Principal Financial Officer)


                                  Date: April 17, 2007

      Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on  its behalf
by the undersigned, thereunto duly authorized.

                                  /s/ Murray N. Conradie
                                  ----------------------
                                  Murray N. Conradie,
                                  President, Chairman and Director
                                  (Principal Executive Officer)

                                  /s/ Marlene Hutcheson, CPA
                                  ----------------------
                                  Marlene Hutcheson, CPA
                                  Chief Financial Officer
                                  (Principal Financial Officer)


                                  Date: April 17, 2007

















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