TXCO Resources Reports Robust Operating Results for 3Q

TXCO Resources Inc.

TXCO Resources has provided an updated current operations review for the third quarter.

Operations Review

Currently, TXCO has 10 rigs running, including eight on its core Maverick Basin acreage, one in the East Texas Fort Trinidad Field and one in Oklahoma. The Company has had record drilling activity this year, starting 89 wells through early October, and is on target to achieve its record $125+ million CAPEX program, which calls for drilling or re-entering more than 100 wells in 2008. Based on current commodity prices, the Company has adequate capital and equipment resources to complete its 2008 drilling program.

Maverick Basin

TXCO is currently developing three major projects in the Maverick Basin, including the Pearsall/Eagleford shale plays, Glen Rose Porosity oil play and San Miguel heavy oil sands.

TXCO's Pearsall shale gas resource project area consists of 848,300 gross (341,000 net) acres covering 1,325 gross (533 net) sections, with estimated recoverable gas of 16 to 24 bcf per section. TXCO is currently drilling and producing wells to evaluate the long-term commercial viability of the play on acreage farmed-in from Anadarko Petroleum Corporation and EnCana Oil & Gas (USA) Inc. Each farm-in agreement has substantially similar terms and conditions, consisting of three phases.

A horizontal Pearsall well drilled by TXCO under the EnCana farm-in agreement, the Myers 2-683H (50 percent working interest) was placed on production in late September at 2.8 mmcfd on a 10/64-inch choke with 3,239 psi flowing tubing pressure. The well averaged 2.2 mmcfd during the first 12 days of production even though it was curtailed by the low-pressure pipeline system into which it is producing. This well was drilled horizontally and completed using a cemented 4.5-inch liner with a five-stage fracture stimulation job. This was the third and final well required to be drilled under Phase I of the farm-in. Based on the success of the three initial wells, TXCO has elected to move to Phase II and will drill four additional Pearsall wells before July 1, 2009.

On the Anadarko farm-in, four wells have been drilled. A fracture stimulation is under way on the Briscoe Chupadera 1 (50% WI through completion). The re-entry was limited to 1,800 feet laterally and a 2.875-inch liner run and cemented in place. The San Pedro 2H (50% WI through completion) is a newly drilled well with a 3,050-foot lateral and a 4.5-inch liner and is waiting on a fracture stimulation which has been delayed as result of a current tight supply of high-strength proppants. This was the fourth well drilled under Phase I of the Anadarko farm-in agreement requiring two Pearsall and two Eagleford test wells. Following stimulation of the San Pedro 2H, TXCO intends to exercise its right to move to Phase II of the agreement and drill four additional wells within the next year. St. Mary Land & Exploration Company also is participating with TXCO under the agreement.

On the Eagleford shale play, the Briscoe Catarina Ranch 1H (50% WI) was re-entered and drilled 3,300 feet horizontally. After a five-stage fracture stimulation, the well went on production at the end of August and has averaged 80 bopd and 533 mcfd for the first 30 days. The San Pedro 1H (50% WI through completion) was re-entered and drilled 3,450 feet horizontally and currently is flowing back following a five-stage fracture stimulation performed in early October. The well has averaged 236 bopd and 664 mcfd during the first seven days of flowback.

Elsewhere in the Maverick Basin, the Glen Rose Porosity oil play's quarterly sales were approximately 218,000 barrels, or 2,370 bopd, in the third quarter, a 5 percent increase from the year-earlier period, and 5 percent below record second-quarter 2008 levels due primarily to lower production levels from non-operated properties on the Comanche lease. The Company has completed or spudded 29 of 35 Porosity wells scheduled for this year. An annual hunting season drilling moratorium that impacts certain Porosity leases will start in November, extending into January 2009.

On TXCO's San Miguel oil sands project, high-temperature steam injection continues at the steam-assisted gravity drainage (SAGD) pilot and initial oil shows have begun. Pre-heat steam circulation continues on the separate fracture-assisted steamflood technology (FAST) pilot. The FAST pilot includes both a vertical, inverted five-spot well pattern and a horizontal three-well pattern that utilizes a modified FAST process. The Company hopes to have a meaningful response on the SAGD project by the end of first-quarter 2009 and on the FAST projects by the end of second-quarter 2009.

Fort Trinidad

In East Texas, TXCO has five wells targeting Glen Rose shoals in the Fort Trinidad Field in completion or drilling horizontal sidetracks. Results on these wells are expected by year end.

Marfa Basin

In West Texas, an advanced, 26-mile, 2-D swath seismic survey is nearing completion on TXCO's 147,000-acre lease block in the Marfa Basin. Processing of the data is expected to be completed by December. 

"TXCO had robust operating results in the third quarter and we are on pace to meet our target for record drilling activity in 2008," said CEO James E. Sigmon. "We believe our strong cash flow will enable us to fully fund our CAPEX requirements for the year. However, like all oil and gas companies, we are watching commodity prices closely and are prepared to scale back drilling if necessary.

"We are particularly excited about the results on our Pearsall gas shale play and the Eagleford oil shale play," Sigmon added. "We and our partners, EnCana, Anadarko and St. Mary, are in the planning stages to delineate our acreage positions by drilling additional horizontal wells. We now expect to add additional activity in the fourth quarter of this year and into 2009."