TXCO currently has five rigs operating on its core, Maverick Basin acreage and seven rigs running overall. Maverick Basin wells currently under way, targeting multiple formations, include two wells targeting the Pearsall formation and one each focusing on the Glen Rose Porosity, Georgetown and Austin Chalk intervals.

Glen Rose-Maverick Basin Some 32 of the wells begun in 2007 target the Maverick Basin’s oil-producing, Glen Rose Porosity interval. Glen Rose Porosity oil sales averaged approximately 1,600 bopd in July as heavy rains slowed Maverick Basin field activity. Production increased to approximately 2,500 bopd in August as weather conditions returned to normal. Meanwhile, in order to maximize ultimate oil recovery from the formation, Schlumberger is moving ahead with a comprehensive reservoir optimization study of the Glen Rose Porosity for TXCO.

Glen Rose-Fort Trinidad The Company is now erecting a rig to spud its first horizontal well in the Fort Trinidad Field of East Texas targeting Glen Rose shoals. TXCO will initially focus on the field’s B-level shoal, where four vertical wells drilled in the 1960s had cumulative gas production ranging from 1-8 bcfe per well. One additional Glen Rose B shoal well is budgeted for 2007, with 40 additional B shoal locations identified for future drilling. TXCO’s ongoing geologic study indicates numerous additional potential locations in the adjoining A, D, E and G shoals.

San Miguel Oil Sands TXCO estimates that the Maverick Basin has 7-10 billion barrels of 0° API gravity tar in-place, of which it controls 2-3 billion net barrels. A two-well, cyclical steam pilot is now in the third production phase testing the extensive tar sand formation. Bottom hole formation temperatures have risen to approximately 270° Fahrenheit. Engineering studies indicate oil mobility would be optimized as temperatures reach 400°-450° F. TXCO (50% WI) is expanding its initial Maverick Basin cyclical steam project and within 30 days plans to spud the first of three new wells in this San Miguel tar sand pilot. The Company expects the additional wells to increase formation temperatures more rapidly and boost overall response.

The produced heavy oil has been submitted for laboratory analysis by prospective refiners recently. TXCO has received preliminary indications of a favorable, $15-17 differential to West Texas Intermediate crude oil postings, which is in line with TXCO’s initial estimates. Additional distillation tests will be needed to finalize the pricing scenario.

Additionally, drilling is scheduled to start in the fourth quarter on the first of 16 wells in a second pilot, located updip several miles from the first pilot. TXCO (50% WI) plans to use the fracture-assisted steamflood technology (FAST) recovery method on the new pilot. In the late 1970s and early 1980s, Conoco successfully recovered more than 300,000 barrels of oil, an estimated 50 percent recovery factor, from two small pilots using this technique. The Company expects this second pilot will accelerate the overall project and establishment of reserves. TXCO serves as operator with Pearl Exploration and Production Ltd. as its 50% partner.