Saratoga Resources, Inc. Reports First Quarter 2012 Financial Results

Saratoga Resources, Inc. (NYSE MKT: SARA; the 'Company? or 'Saratoga?)
today announced financial and operating results for the quarter ended
March 31, 2012.

Key Financial Results

• 
  Oil and gas revenues of $19.3 million for the first quarter 2012
  compared to $15.8 million for the first quarter 2011;
  
• 
  Net loss of $(1.2) million, or $(0.04) per fully diluted share, for
  first quarter 2012 compared to net income of $358,000, or $0.02 per
  fully diluted share, for the first quarter 2011;
  
• 
  Discretionary cash flow of $5.8 million, or $0.21 per fully diluted
  share, for the first quarter 2012 compared to discretionary cash flow
  of $5.4 million, or $0.26 per fully diluted share, for the first
  quarter 2011;
  
• 
  EBITDAX of $10.0 million for the first quarter 2012 compared to $9.3
  million for the first quarter 2011; and
  
• 
  Reserve replacement ratio of 151%.
  

Discretionary cash flow and EBITDAX are non-GAAP financial measures and
are defined and reconciled to the most directly comparable GAAP measure
under 'Non-GAAP Financial Measures? below.

The change in revenues for the first quarter 2012 reflects increased
production volumes (up 24% compared to the first quarter 2011) and
increased prices realized from oil sales (up 26%) partially offset by
lower natural gas prices. The loss for the quarter reflected one time
charges of $1.6 million associated with plugging and abandoning of over
80% of the Company's deep, overpressured, legacy 'orphan? wells that
were unproductive with no future utility and a $1.8 million increase in
DD&A costs driven by our investments in infrastructure projects and
increases in production volume together with investments in our
development program. The Company retired the majority of its plugging
and abandonment ('P&A') obligation for 2012 in the first quarter.

Operational Highlights

Operational highlights for first quarter 2012 included:

• 
  6 recompletions and 3 SWD workovers completed;
  
• 
  $1.3 million invested in continuing infrastructure upgrade program to
  de-bottleneck and support increased production;
  
• 
  107 gross (104 net) wells in production at March 31, 2012; and,
  
• 
  32,185 gross (32,185 net) acres in 12 fields under lease at March 31,
  2012.
  

During the first quarter of 2012, Saratoga undertook six recompletions
and three workovers related to conversion to, or maintenance of,
salt-water disposal wells. Saratoga also continued to invest in
infrastructure upgrades and additions to support existing production and
anticipated increases in production, investing $1.3 million in
infrastructure projects during the quarter. In the final weeks of the
quarter, following extended delays arising from fabricator delivery
times, Saratoga substantially completed its de-bottlenecking projects.
As a result, Saratoga believes that infrastructure related curtailment
of production has been substantially resolved.

Production Highlights

• 
  Oil and gas production of 150.7 thousand barrels of oil ('MBO?) and
  620.7 million cubic feet of gas ('MMCFG?), or 254.2 thousand barrels
  of oil equivalent ('MBOE?) (59% oil) for the first quarter 2012, up
  24% from 205.5 MBOE for the first quarter 2011; and
  
• 
  Production rates grew during the quarter as infrastructure
  de-bottlenecking projects were completed late in the quarter and with
  continued progress in recompletion and workover programs.
  

Production rates were curtailed early in the quarter due to ongoing
delays in completion of infrastructure de-bottlenecking projects, with
delays arising from longer than expected lead times in fabrication of
critical components. Those delays, together with selective curtailment
of gas production due to pricing, resulted in lower than expected
production during the first quarter. With the completion of the
principal de-bottlenecking projects during March, the completion of a
four well recompletion program and other investments in Saratoga′s
development program, production levels moved up substantially over the
final days of the quarter. The impact of completing the de-bottlenecking
program, together with investments in Saratoga′s development program are
reflected in monthly production volumes growing as shown in the
accompanying 'Monthly Net Production ?Volumes' graphic.

Reserve Highlights

• 
  Quarter-end Company estimate of SEC proved reserves consisted of 8.125
  million barrels of oil ('MMBO?) and 65.849 billion cubic feet of gas
  ('BCFG?), or 19.099 million barrels of oil equivalent ('MMBOE?), up 1%
  from 18.969 MMBOE of proved reserves at year-end 2011;
  
• 
  Reserve replacement ratio of 151%;
  
• 
  Proved developed reserves comprised 26% of quarter-end proved
  reserves; and
  
• 
  Quarter-end Company estimate of 3P reserves totaled 74.565 MMBOE.
  

Reserve growth and reserve replacement ratio reflect conversion of
reserves through the recompletions undertaken during the first quarter,
updated commodity pricing and revised timing of capital expenditures.

Development Plans

• 
  Low risk recompletions, thru-tubing plugbacks and workovers from
  inventory of 55 proved developed non-producing ('PDNP?) opportunities
  in 8 fields;
  
• 
  Development of proved undeveloped ('PUD?) reserves from inventory of
  86 PUD opportunities in 24 wellbores in 5 fields; and
  
• 
  Strategic partnerships and joint ventures for risk-sharing on
  exploratory ultra-deep prospects at Grand Bay and Vermilion 16.
  

Our near term development plans are focused on proved undeveloped
opportunities and conversion of PDNP opportunities. At March 31, 2012,
permitting had been completed on several proved undeveloped wells and
permitting was underway on several more additional proved undeveloped
wells. We presently anticipate drilling up to seven proved undeveloped
wells over the balance of 2012 and up to seven development wells
annually thereafter. The company currently has two drilling rigs under
contract for development drilling and an additional workover rig under
contract.

Financial Position and CAPEX Highlights

• 
  $14.8 million of cash on hand at March 31, 2012;
  
• 
  $6.6 million of working capital at March 31, 2012;
  
• 
  $7.0 million of CAPEX for first quarter 2012;
  
• 
  $44.0 million CAPEX budgeted for balance of 2012; and
  
• 
  2012 CAPEX budget fully funded by cash on hand and projected operating
  cash flow.
  

Saratoga fully funded its CAPEX budget during the first quarter of 2012,
as it has done for more than two years, from its cash on hand and
operating cash flows.

Management Comments

Thomas Cooke, Chairman and CEO, commented, 'The 2012 first quarter was a
quarter of continued progress along with a few long-standing challenges
that we believe have now been put behind us. We continued to see
excellent results from our recompletion and workover program.

The quarter saw the completion of long-standing infrastructure projects
that have historically presented impediments to operation of wells at
optimal production rates due to bottlenecking and related issues. While
we were frustrated by the long lead times for fabrication of key
components to complete those projects, we are pleased that as we exited
the quarter we believe that the principal bottlenecking issues are now
behind us and we are now in a position to operate existing wells at
their optimal production rates and to support anticipated growth in
production going forward. Completion of those projects, together with
our recompletion and work-over program, fueled production growth over
the last days of the quarter and continuing after the quarter, driving
growth in our daily production from an average of approximately 2,600
BOEPD for calendar year 2011 to an average of approximately 4,000 BOEPD
in our most recent month, April 2012.

We also addressed during the quarter the plugging of five legacy
'orphan' wells. We assumed these P&A obligations in the 2008 acquisition
of the Harvest Companies and these wells had no further utility for the
Company. The respective wells were deep high-pressured wells that
presented unique and unusual challenges. As a result of the challenges
faced in plugging those wells, we incurred P&A costs above our original
estimates resulting in a one-time charge to earnings. With the plugging
of those wells, we now have only one remaining deep, high-pressured well
requiring plugging once production has ceased.

From an operating income standpoint, the delays in bringing our
production up to anticipated levels discussed above, along with the
costs associated with P&A of legacy wells and a jump in our DD&A put us
in a net loss position for the quarter. The jump in DD&A reflected a
combination of depreciation of our substantial investments in
infrastructure over the past year plus the growth in our production
rates along with investments in our development, recompletion and
workover program. Notwithstanding the anomalies during the quarter, we
continue to produce strong cash flow, with discretionary cash flow
growing from $5.4 million in the 2011 quarter to $5.8 million in the
2012 quarter and EBITDAX growing from $9.3 million in the 2011 quarter
to $10.0 million in the 2012 quarter.

With our infrastructure projects substantially behind us and plugging of
all but one of our orphan wells complete, we are now in a position to
focus our future CAPEX expenditures on drilling and development
opportunities. We continue to shepherd our resources carefully,
continually evaluating expected drilling costs and production potential
of prospective wells with a view to support the continuing growth in our
production levels fueled by our resources on hand and operating cash
flows. As we enter the second quarter, we expect to have multiple rigs
in the field advancing each of our development drilling and recompletion
and workover programs.'

Conference Call Information

The company will host a conference call to discuss these results on May
15, 2012 at 10:30 AM EDT (9:30 AM CDT, 7:30 AM PDT) and interested
parties in the U.S. can participate in the call by dialing (866)
501-1535. Interested international parties can participate in the call
by dialing (216) 672-5582. The participant passcode for both the U.S.
and international call is 78912932. Alternatively, the audio content of
the call can be accessed on the Company′s web site at www.saratogaresources.com.
The call will be archived on the Company web site for parties who are
unable to listen to the live call. Also, a transcript of the call will
be available for reading on the Company's web site for 72 hours after
the completion of the call. Further details, including a slide
presentation accompanying the call, will be accessible on the Company′s
website at www.saratogaresources.com
in advance of the call.

About Saratoga Resources

Saratoga is an independent exploration and production Company with
offices in Houston, Texas and Covington, Louisiana. Principal holdings
cover 32,185 gross/net acres, mostly held-by-production, currently
located in the transitional coastline and protected in-bay environment
on parish and state leases of south Louisiana. For more information, go
to our website at www.saratogaresources.com
and sign up for regular updates by clicking on the Updates button.

Forward-Looking Statements

This press release includes certain estimates and other forward-looking
statements within the meaning of Section 21E of the Securities Exchange
Act of 1934, including statements regarding future ability to fund the
company′s development program and grow reserves, production, revenues
and profitability, ability to reach and sustain target production
levels, ability to secure commitments to participate in exploration of
deep shelf prospects, and the ultimate outcome of such efforts. Words
such as 'expects?, 'anticipates', 'intends', 'plans', 'believes',
'assumes', 'seeks', 'estimates', 'should', and variations of these words
and similar expressions, are intended to identify these forward-looking
statements. While we believe these statements are accurate,
forward-looking statements are inherently uncertain and we cannot assure
you that these expectations will occur and our actual results may be
significantly different. These statements by the Company and its
management are based on estimates, projections, beliefs and assumptions
of management and are not guarantees of future performance. Important
factors that could cause actual results to differ from those in the
forward-looking statements include the factors described in the 'Risk
Factors' section of the Company's filings with the Securities and
Exchange Commission. The Company disclaims any obligation to update or
revise any forward-looking statement based on the occurrence of future
events, the receipt of new information, or otherwise.

Non-GAAP Financial Measures

Discretionary Cash Flow is a non-GAAP financial measure.

Discretionary Cash Flow is a supplemental financial measure used by the
company′s management and by securities analysts, investors, lenders,
rating agencies and others who follow the industry as an indicator of
the company′s ability to internally fund exploration and development
activities. Discretionary cash flow should not be considered as a
substitute for net income, operating income, cash flows from operating
activities or any other measure of financial performance or liquidity
presented in accordance with generally accepted accounting principles
('GAAP?). Discretionary cash flow excludes some, but not all, items that
affect net income and operating income and these measures may vary among
other companies. Therefore, the company′s Discretionary Cash Flow may
not be comparable to similarly titled measures used by other companies.

The table below reconciles the most directly comparable GAAP financial
measure to Discretionary Cash Flow.

EBITDAX is a non-GAAP financial measure.

EBITDAX is a supplemental financial measure used by the company′s
management and by securities analysts, investors, lenders, rating
agencies and others who follow the industry as an indicator of the
company′s ability to internally fund exploration and development
activities and to service or incur additional debt. The company also
uses this measure because EBITDAX allows the company to compare its
operating performance and return on capital with those of other
companies without regard to financing methods and capital structure.
EBITDAX should not be considered as a substitute for net income,
operating income, cash flows from operating activities or any other
measure of financial performance or liquidity presented in accordance
with generally accepted accounting principles ('GAAP?). EBITDAX excludes
some, but not all, items that affect net income and operating income and
these measures may vary among other companies. Therefore, the company′s
EBITDAX may not be comparable to similarly titled measures used by other
companies.

The table below reconciles the most directly comparable GAAP financial
measure to EBITDAX.

Photos/Multimedia ?Gallery Available: http://www.businesswire.com/cgi-bin/mmg.cgi?eid=50277890&lang=en

Saratoga Resources, Inc.

Brad Holmes, 713-654-4009

Investor
Relations

or

Thomas Cooke, 713-458-1560

CEO

or

Andrew
Clifford, 713-458-1560

President

or

Michael Aldridge,
713-458-1560

CFO

www.saratogaresources.com