The Exploration Company Begins Operations on Paloma Field

The Exploration Company has started drilling on a Jurassic exploratory prospect on its Paloma lease in Maverick County, Texas. The Taylor 132-1 well, targeting natural gas, is permitted to a depth of 18,500 feet. Drilling is estimated to take approximately 90 to 120 days.

The well will be drilled at no cost to TXCO by Dallas-based Blue Star Oil & Gas Ltd. The two firms have a joint operating agreement for development of the Jurassic formations underlying TXCO's Paloma and Kincaid leases.

Under terms of the agreement, TXCO (62.5%) and its partners (37.5%) will share an 18.75% overriding royalty interest in any production associated with the well, reverting to a shared 25% working interest upon payout. In exchange for the carried interest, Blue Star will earn a 25% interest in the deep rights below the Sligo formation in the 50,000 acres under the Paloma and Kincaid leases. Blue Star retains the right to carry TXCO for an identical interest in a second well to earn an additional 25% in the deep rights under the two leases.

"The Taylor 132-1 is the first Maverick Basin well to drill deep enough to test the Jurassic formations," said James E. Sigmon, president and chief executive officer. "Although Exxon, Shell and Conoco targeted the Jurassic in the Maverick Basin from the 1950s through the 1970s, they did not have the benefit of 3-D seismic. Consequently, those early tests were either poorly located or did not drill deep enough. This will be the first well drilled deep enough, testing the Jurassic formations in a favorable location defined by 3-D seismic. With the Taylor 132-1 drilling ahead, we now have six rigs running concurrently on our Maverick Basin leasehold," Sigmon added.