The Exploration Company Accelerates Maverick Basin Program

The Exploration Company has entered into purchase agreements with certain accredited investors for the private placement of 4,266,669 shares of its common stock at a purchase price of $3.75 per share for gross proceeds of $16 million. Proceeds will be used primarily to accelerate development of the Company's 492,000-acre Maverick Basin lease block in Southwest Texas.

Included are warrants for an additional 1,280,000 common shares exercisable at $4.25 per share. The warrants may be exercised no earlier than six months after closing and expire three-and-one-half years thereafter. Purchasers were private, U.S.-based investment funds, led by Crestview Capital Master LLC of Northbrook, Ill. TXCO will file a registration statement with the Securities and Exchange Commission within 30 days after completion of the transaction, covering the resale of shares of common stock sold in the private placement or issuable upon exercise of the warrants. First Albany Capital and C.K. Cooper & Co. served as placement agents for the transaction.

Proceeds of $15.04 million, net of expenses, will allow the Company to expand the drilling portion of its 2004 capital expenditure program by more than 50 percent. TXCO plans to use $8 million of the proceeds to drill wells targeting Glen Rose reefs seismically defined on its 80,000-acre Burr/Wipff prospect. TXCO owns a 100 percent working interest in this portion of its Maverick Basin acreage block. The remaining $7 million will increase drilling activity on the Company's Comanche prospect, restore balance sheet liquidity and complement TXCO's ongoing operations, development and general corporate activities.

"Our limiting factor has been capital -- not prospects," said President and CEO James E. Sigmon. "The Company's multi-play/multi-pay strategy has been highly successful, allowing us to identify numerous attractive targets. This new funding will help us accelerate development of one of our most-promising plays -- the gas-charged Glen Rose reefs. These reefs have been a consistent producer for years in the Maverick Basin. We have just finished analyzing new 3-D seismic from a portion of the Burr/Wipff prospect. It identifies as many as 15 reefs and we anticipate an immediate start of drilling. Our technical staff estimates that if we are successful in placing only half of these reefs on production, we can expose the Company to approximately 28 billion cubic feet of new gas reserves by year end.

"TXCO has a very large leasehold position for a company of our size. Recent headlines in the exploration and production industry have reflected high valuations on firms with large, undeveloped acreage positions in proven oil and gas provinces," Sigmon added. "Accelerating our drilling and development activities will enable TXCO to leverage its growing prospect inventory, better reflecting the full potential of its Maverick Basin acreage."

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