TXCO Resources Inc. declared its board of directors has approved a record capital expenditure budget and drilling program for 2008. It also provided an update on current activity.

The Company’s initial CAPEX for next year has been set in a range of $100 million to $110 million, including 97 scheduled wells. TXCO expects to fund its capital program through proceeds from a recent private placement of preferred stock, internal cash flow and an existing bank credit facility. The 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.

Through early December, TXCO had spudded or re-entered 85 wells this year, including eight wells currently drilling. In the Maverick Basin’s Pearsall gas play, the Glass Ranch B 1-77 (100% WI) has been initially completed vertically and is expected to go on production before year end. In its latest tests, the well flowed at a rate of 2,000 mcfd at 6,000 psi flowing tubing pressure for four days prior to being shut in pending construction of an 8.5-mile pipeline to produce the well. The Glass well is the first by TXCO to the Pearsall in the southern portion of the Maverick Basin.

Targeting the same formation, TXCO has completed drilling its first horizontal Pearsall well, the Cage 26-2H (50% WI), having placed five open-hole packers at various intervals in the lateral in preparation to fracture-stimulate the interval by the end of January 2008. Meanwhile, the Burr Estate 1-68ST1 (100% WI) was successfully re-entered horizontally in the Pearsall and is awaiting a fracture-stimulation completion.

In the tar sand pilot, the Company has successfully completed its initial, two-well cyclic steam pilot phase, having mobilized the oil and established a favorable WTI price differential from area refiners. Based on continuing reservoir simulation studies, TXCO has decided to convert this pilot to a Steam-Assisted Gravity Drainage (SAGD) process by the addition of two horizontal wells. TXCO currently is drilling the new horizontal wells with its recently purchased shallow drilling rig. The SAGD technique is used extensively in the Athabasca tar sands in Canada. This marks the first time that a SAGD pilot will be applied to the San Miguel tar sands.

The SAGD well pair is being drilled in between the existing cyclic steam wells, which will be converted to temperature-monitoring wells. Existing steam generation capacity will be doubled by the addition of a second 25 mmBtu steam generator, expected to be delivered in January.

TXCO also will utilize its new drilling rig to establish a second pilot during the first half of 2008, featuring 8-16 new horizontal/vertical wells utilizing modified Fracture-Assisted Steamflood Technology (FAST), a technique proven by Conoco in years past. The wells will be drilled on a schedule consistent with expected deliveries of two new 50 mmBtu steam generators in April and May 2008.

In the East Texas Fort Trinidad Field, intermediate casing has been set in the vertical portion of the Forrest 2H (50% WI), the first horizontal well to be drilled into the Glen Rose B shoal. TXCO expects to begin drilling the horizontal portion of the well within the next few days. The Company has identified 40 prospective locations in the B shoal, one of five gas-charged shoals located in the field, where it has 8,300 net acres under lease.

TXCO’s net Glen Rose Porosity oil sales early in the fourth quarter were averaging 2,440 bopd, an 8 percent increase from 2,253 bopd in the third quarter. Fourth-quarter sales levels are expected to be comparable to third-quarter results, consistent with the Company’s seasonal activity slowdown due to the annual hunting season drilling moratorium. Currently, only one drilling rig is active in drilling Porosity wells. Schlumberger is continuing its comprehensive reservoir optimization study of the Porosity, which is anticipated to be concluded about the end of February 2008.

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