TXCO Announces Record 2007 Capital Spending, Drilling

The Exploration Company (TXCO) on Wednesday announced a record capital expenditure plan and drilling program for 2007. It also provided an update on its current Texas drilling activity.


TXCO's board of directors has approved an initial 2007 capital budget in a range of $70 million to $75 million - the Company's largest ever, targeting 103 gross wells and a 70 percent increase over the revised 2006 target of 60-plus wells. The Company expects to fund its CAPEX program from internal cash flow and an existing bank credit facility.

The capital budget may be revised, based on drilling plan changes by partners, rig availability, drilling results, operational developments, unanticipated transaction opportunities, market conditions or commodity price fluctuations.

The Maverick Basin's prolific Glen Rose Porosity oil play (73-100 percent working interest) will continue to receive the largest share of the CAPEX budget, $39.3 million for 39 wells, including five re-entries. TXCO's emerging San Miguel oil sands play (50% WI) will receive $9.1 million for 32 wells. The budget calls for three wells to the gas-prone Pearsall formation (50% WI), budgeted at $4.8 million. The budget allocates $4.9 million for seven wells targeting the Georgetown formation (63-100% WI) and $5.8 million for 10 wells to the Glen Rose reefs and shoals. The Company will continue development of its Pena Creek San Miguel waterflood (100% WI) with $3.5 million set aside for 11 wells.

In the Marfa Basin (50% WI), which is prospective for the Barnett and Woodford shales, the Company has allocated approximately $3.0 million for one new well and a three-dimensional seismic acquisition program. Other items in the budget, including leasing and infrastructure projects, are earmarked for $2.0 million.

               TXCO Initial CAPEX Budget Comparison(a)
                                 2007       2007     2006
      Formation/Project          CAPEX      Gross    Wells     % WI
                             ($ Millions)   Wells     YTD
Glen Rose Porosity (oil)        $39.3        39       31     73-100
Glen Rose Shoals/Reefs (gas)     5.8         10       2      48-100
Pearsall (gas)                   4.8         3        1        50
Georgetown (gas/oil)             4.9         7        4      63-100
Pena Creek San Miguel (oil)      3.5         11       15       100
Marfa Basin
(Barnett/Woodford Shales)        3.0         1        1        50
San Miguel oil sands             9.1         32       1        50
Other                            2.0         -        2         -
Total                           $72.4       103       57        -
(a) Initial capital expenditures may be revised based on rig
 availability, drilling results, operational developments,
 unanticipated transaction opportunities, market conditions or
 commodity price fluctuations.

Current Operations

Through mid December, TXCO has begun 57 Texas wells in 2006, including 39 wells now on production, five completed and awaiting hook-up, eight to be completed or re-completed, three drilling and one to be plugged and abandoned. In the Maverick Basin, 31 of the wells have targeted the Glen Rose Porosity, 15 wells have been drilled to the Pena Creek San Miguel, four to the Georgetown, one each to a Glen Rose Shoal and Reef, one to the Pryor and one to the Pearsall, one to the San Miguel oil sands, plus a disposal well. Additionally, a re-entry in the Marfa Basin of West Texas targeted the Barnett and Woodford shales. An annual hunting season drilling moratorium on certain Maverick Basin leases began in November, which impacts fourth-quarter drilling and oil and gas sales. The moratorium ends in mid January.

Glen Rose Porosity

The largest share of TXCO's 2006 drilling program has focused on the Glen Rose Porosity with 31 wells spudded through early December, including 20 wells placed on production, five completed and awaiting hook-up, three in completion or re-completion and two currently drilling.

Oil Sands

The Company is well into the steam injection phase of an initial two-well San Miguel oil sands pilot. The 90- to 120-day steaming test is designed to determine optimum steam-to-oil injection ratios. Initial production also will help establish benchmark pricing for upgraded oil. Encouraged by early test results, TXCO and its partner, a unit of Pearl Exploration and Production Ltd., Calgary, Alberta, plan to drill at least 32 additional oil sands wells during 2007, including wells carried over from this year. TXCO serves as operator and has a 50 percent working interest.


Completion and testing is under way on the Barclay 162-2 (50% WI), a vertical Pearsall shale delineation project operated by EnCana Oil & Gas (USA) Inc. The well is the first of a series of wells that will test the Pearsall, a potential gas-prone resource play. EnCana's extensive fracture stimulation testing and evaluation process is expected to continue into first-quarter 2007.

Marfa Basin

Testing continues on the Simpson 1 (50% WI), a re-entry and the first well on TXCO's Marfa Basin acreage. The well targets the Woodford and/or Barnett shales. The well is providing valuable data as TXCO and its operating partner, Continental Resources Inc. of Enid, Okla., prepare to shoot 3-D seismic and drill a new Marfa Basin well in 2007.

Management Perspective

"We are truly excited about the Company's potential as we ready for another record year of drilling in 2007," said Chairman, President and CEO James E. Sigmon. "TXCO will undertake its largest CAPEX program ever, including progress on our three catalysts that could have a significant impact on our future production and reserves - the Pearsall shale and San Miguel oil sands projects in the Maverick Basin and the Barnett/Woodford shales prospect in the Marfa Basin. Meanwhile, we plan to continue to expand our successful Glen Rose Porosity oil play. Coupled with our strong balance sheet, high oil price realizations and excellent cash flow, I believe the next year will see our accelerating growth continue."

The Exploration Company is an independent oil and gas enterprise with interests primarily in the Maverick Basin of Southwest Texas and the Marfa Basin in West Texas. The Company has a consistent record of long-term growth in its proved oil and gas reserves, leasehold acreage position, production and cash flow through its established exploration and development programs. Its business strategy is to build shareholder value by acquiring undeveloped mineral interests and internally developing a multi-year drilling inventory through the use of advanced technologies, such as 3-D seismic and horizontal drilling.


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