TXCO Enters Deal with EnCana at Maverick Basin in Texas

Maverick Basin
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TXCO Resources has entered into a joint exploration agreement with EnCana Oil & Gas to drill selected interests in EnCana's Maverick Basin block in Southwest Texas. EnCana Oil & Gas is an indirect wholly owned subsidiary of EnCana Corporation of Calgary, Alberta, Canada. Terms of the joint exploration agreement include:

TXCO acquired 100% of EnCana's interests in formations above the Pearsall (Shallow Rights) in approximately 250,000 gross acres across the southern portion of EnCana's acreage position in the Maverick Basin that are subject to certain lease maintenance obligations.

TXCO agreed to drill 3 horizontal Pearsall wells on the lease block prior to July 31, 2008, carrying EnCana for a 50% working interest in each well. TXCO will acquire a 50% interest in the Pearsall and deeper formations (Deep Rights) in 1,280 acres around each well.

TXCO will have the option, but not the obligation, to drill 4 additional horizontal Pearsall wells prior to July 31, 2009, carrying EnCana for 50% working interest in each well. TXCO will earn a 50% working interest in the Deep Rights in 5,760 acres around each well.

TXCO will have the additional option, but not the obligation, to carry EnCana for a 25% working interest in an additional 16-20 horizontal Pearsall wells, depending upon well costs. Consequently, TXCO has the option to earn 50% of the Deep Rights in the remaining acres in the 250,000-lease block.

Additionally, TXCO drill stem tested (short flow test during drilling operations) in its Glass Ranch B #1-77 (100% WI) an interval defined as the top of the Pearsall in the EnCana/TXCO joint exploration agreement. The well-flowed gas at a rate of approximately 10 million cubic feet per day for 4 hours. Vertical drilling operations are continuing on the well in an effort to drill through the entire Pearsall interval. The Glass well is the first effort by either TXCO or EnCana to drill the Pearsall in the southern portion of the Maverick Basin.

"This new joint exploration agreement enhances our continuing relationship with our partner, and provides TXCO the ability to earn a significant portion of the interests in the deeper horizons on 250,000 acres," said TXCO Chairman, President and CEO James E. Sigmon. "Additionally, the acquisition of the Shallow Rights above the Pearsall will allow us to recomplete the 90 plus Glen Rose porosity wells that we have drilled to date in other zones as these porosity wells deplete. EnCana remains our 50% partner in the deeper horizons and will contribute their valuable expertise to the development of the Pearsall interval."

"Flowing gas at a rate of 10 million cubic feet per day from the upper Pearsall in the drill stem test on the Glass Ranch well demonstrates the potential of the zone in the Maverick Basin. We are excited by the flow test because this is the first Pearsall well that we have drilled in the southern portion of the Basin. We believe that horizontal wells will ultimately make the Pearsall a major producing interval in the Maverick Basin."

TXCO Resources, formerly The Exploration Company, is an independent oil and gas enterprise with interests in the Maverick Basin, the onshore Gulf Coast region and the Marfa Basin of Texas, and the Mid-continent region of western Oklahoma. It 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. TXCO's 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. It accounts for its oil and gas operations under the successful efforts method of accounting and trades its common stock on Nasdaq's Global Select Market under the symbol "TXCO."


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