TXCO Resources Reports Record Results for 2007

SAN ANTONIO--(Business Wire)--
TXCO Resources Inc. (Nasdaq:TXCO) today reported results for its
year and quarter ended December 31, 2007. The Company set records for:

-- Revenues.

-- Oil and gas sales.

-- Cash flow.

-- Total assets.

-- Proved reserves.

For the year, total revenues rose to a record $93.9 million, a 30
percent increase from $72.4 million in 2006. Oil and gas sales
increased 45 percent from the prior year to $81.8 million. Assets rose
to $354.6 million, nearly 150 percent above year-end 2006, including
the second-quarter 2007 acquisition of Output Exploration LLC.

The Company reported net income attributable to common stock of
$0.9 million, equal to $0.03 per share, compared with $7.2 million,
$0.22 per share, in 2006. Operating income, $10.4 million, was
essentially flat with the prior year.

Net cash provided by operating activities was $69.4 million,
partially reflecting accrued acquisition costs, a 181 percent increase
from $24.7 million in 2006. Ebitda - earnings before income taxes,
interest expense, depreciation, depletion, amortization, impairment
and abandonment expense - was a record $52.9 million, or $1.52 per
share, a 42 percent increase from $37.3 million, or $1.12 per share,
in 2006. Ebitdax - Ebitda plus exploration expense - also set a record
of $54.2 million, or $1.56 per share, compared with $40.3 million,
$1.21 per share in the prior year. All per-share amounts are on a
diluted basis. See the accompanying table for a reconciliation of
non-GAAP financial measures.

Fourth-Quarter Results

For the fourth quarter of 2007, TXCO had net income attributable
to common stock of $1.8 million, or $0.05 per share, compared with a
net loss of $4.4 million, $0.13 per share, in fourth-quarter 2006.
TXCO's revenues for the three months ended December 31, 2007, were
more than double the same period in the prior-year period, $32.1
million compared with $15.3 million. Oil and gas sales also were more
than double the 2006 quarter, $28.9 million versus $12.1 million. Oil
and gas volumes increased to 2.4 bcfe, compared with 1.5 bcfe in
fourth-quarter 2006.

Continuing Reserve Growth

Proved reserves increased sharply through both the Output
acquisition and drilling. Net proved reserves at the end of 2007 were
a record 91.8 bcfe, up from TXCO's estimated proved reserves of 41.4
bcfe at year-end 2006. Combined with record 2007 oil and gas sales of
7.9 bcfe, gross reserve additions were 58.3 bcfe, including 18.5 bcfe
via the drillbit, before acquisitions. Overall, TXCO had a 731 percent
all-source reserve replacement rate. Estimated, pre-tax future net
cash flows discounted at 10 percent (PV-10) for proved reserves at
year-end 2007 were $373 million, based on adjusted commodity prices of
$92.75 per barrel for crude oil and $6.445 per mmBtu for natural gas.
TXCO's year-end 2006 PV-10 stood at $92.7 million.

The Company's reserve life index rose to 11.5 years, compared with
seven years at year-end 2006. Its reserve mix at year end consisted of
54 percent oil and 46 percent gas, of which approximately 59 percent
was proved developed.

All reserve estimates were prepared by the independent engineering
firms of DeGolyer and MacNaughton and William M. Cobb & Associates
Inc. in accordance with Securities and Exchange Commission and
Financial Accounting Standards Board requirements.

Management Perspective

"We began 2008 as a different company following the landmark
changes that followed our acquisition of Output Exploration during
2007," said Chairman and CEO James E. Sigmon. "We continue to build on
the valuable assets we gained in the Output transaction. I see more
potential than ever before to create greater shareholder value through
such exciting projects as the San Miguel oil sands, Pearsall gas
resource play, Glen Rose Porosity oil play and Fort Trinidad Glen Rose
shoals. I remain confident that we will see stronger continuing growth
in production, reserves, profitability and shareholder value in 2008
and going forward."

Conference Call and Webcast

TXCO has scheduled a conference call for 10 a.m. CDT (11 a.m. EDT)
Tuesday, March 11, 2008, to discuss 2007 financial results and current
operations. The call will be broadcast live via the Company's Web site
at www.txco.com/concall.html or by telephone at (877) 387-9209
in the U.S. and Canada and (706) 643-3820 for international callers.
Passcode is 34954051. A replay will be available through Thursday,
March 13, 2008, at (800) 642-1687 (U.S./Canada) and (706) 645-9291
(international) with the same passcode, and for 30 days at
www.txco.com/concall.html.

Also, the Company will webcast its presentation at this week's
Dahlman Rose & Co. Energy Supply Chain Conference in New York and
Boston. Mr. Sigmon's New York presentation is scheduled to start at
10:30 a.m. CDT (11:30 a.m. EDT) Wednesday, March 12. The webcast will
be available via TXCO's Web site at
www.txco.com/presentation.html, and will be archived for future
reference.

About TXCO Resources

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 Midcontinent 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."

Important Information

TXCO Resources filed a preliminary proxy statement with
the Securities and Exchange Commission ("SEC") on March 10, 2008, in
connection with the election of directors and other actions to be
taken at the 2008 Annual Meeting of Stockholders. TXCO Resources will
soon be filing with the SEC and mailing to its stockholders a
definitive proxy statement and WHITE proxy card in connection with the
2008 Annual Meeting of Stockholders. As required by the SEC, you are
urged to read the preliminary proxy statement and the definitive proxy
statement (as well as any amendments or supplements thereto) relating
to the 2008 Annual Meeting of Stockholders when they become available
because they contain important information. After being filed with
the SEC, you will be able to obtain the preliminary proxy
statement and the definitive proxy statement (as well as any
amendments or supplements thereto) and other relevant documents free
of charge at the SEC's website, www.sec.gov. In addition, copies of
the definitive proxy statement and other relevant documents will be
made available for free to any TXCO stockholder who makes a request to
TXCO's Corporate Secretary and Vice President-Capital Markets, Roberto
R. Thomae, at (210) 496-5300 (ext. 214) or 777 East Sonterra Blvd.,
Suite 350, San Antonio, Texas 78258.

TXCO Resources and its directors, executive officers and
other employees may be deemed to be participants in the solicitation
of proxies in connection with the 2008 Annual Meeting of Stockholders.
Information regarding the names and interests of these persons in
connection with the 2008 Annual Meeting of Stockholders was included
in the preliminary proxy statement, filed with the SEC on March 10,
2008, as such information may be supplemented or amended by the
definitive proxy statement. In addition, TXCO Resources files annual,
quarterly and special reports, proxy and information statements, and
other information with the SEC. These documents are available free of
charge at the SEC's website at www.sec.gov or from TXCO at
www.txco.com.

Forward-Looking Statements

Statements in this press release that are not historical,
including statements regarding TXCO's or management's intentions,
hopes, beliefs, expectations, representations, projections,
estimations, plans or predictions of the future, are forward-looking
statements and are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Such statements
include those relating to budget and drilling plans, capital
expenditures, production levels, the timing, number and cost of wells
to be drilled, new projects and expected response, and establishment
of reserves. It is important to note that actual results may differ
materially from the results predicted in any such forward-looking
statements. Investors are cautioned that all forward-looking
statements involve risks and uncertainty, including without
limitation, the costs of exploring and developing new oil and natural
gas reserves, the price for which such reserves can be sold,
environmental concerns affecting the drilling of oil and natural gas
wells, as well as general market conditions, competition and pricing.
TXCO undertakes no obligation to revise or update any forward-looking
statements, or to make any other forward-looking statements, whether
as a result of new information, future events or otherwise. More
information about potential factors that could affect the Company's
operating and financial results is included in TXCO's annual report on
Form 10-K for the year ended December 31, 2006, and its Form 10-Q for
the quarter ended September 30, 2007. These and all previously filed
documents are on file at the Securities and Exchange Commission and
can be viewed on TXCO's Web site at www.txco.com. Copies are available
without charge, upon request from the Company.

(Financial Information and Selected Operational Tables Follow)

-0-
*T
TXCO RESOURCES INC.
Condensed Consolidated Balance Sheets
(Unaudited)

December 31
------------------
(in thousands) 2007 2006
-------------------------------------------------- ------------------
Assets

Current Assets
Cash and equivalents $ 9,831 $ 3,882
Accounts receivable:
Joint interest owners 4,167 3,321
Oil and gas sales 13,785 5,811
Federal income tax 4,974 4,468
Prepaid expenses and other 2,989 887
------------------
Total Current Assets 35,746 18,369

Property and Equipment, net - successful efforts
method of accounting for oil and gas properties 314,941 119,574

Other Assets
Deferred tax asset - 5,310
Deferred financing fees 2,613 60
Other assets 1,307 488
------------------
Total Other Assets 3,920 5,858
------------------

Total Assets $354,607 $143,801
==================
*T

-0-
*T
TXCO RESOURCES INC.
Condensed Consolidated Balance Sheets
(Unaudited)

December 31
------------------
(in thousands, except shares and per share
amounts) 2007 2006
-------------------------------------------------- ------------------
Liabilities And Stockholders' Equity

Current Liabilities
Accounts payable, trade $ 11,345 $ 7,969
Other payables and accrued liabilities 39,916 6,433
Undistributed revenue 2,401 1,035
Notes payable 399 267
Derivative settlements payable 475 70
Preferred dividends payable 397 -
Accrued derivative obligation - short-term 4,725 321
------------------
Total Current Liabilities 59,658 16,095

Long-Term Liabilities
Long-term debt 100,000 2,351
Deferred income taxes 12,007 -
Accrued derivative obligation - long-term 3,993 -
Asset retirement obligation 4,233 1,703
------------------
Total Long-Term Liabilities 120,233 4,054

Commitments and Contingencies - -

Stockholders' Equity
Preferred stock; authorized 10,000,000 shares,
Series A, -0- shares issued and outstanding
Series B, -0- shares issued and outstanding
Series C, 55,000 shares issued and outstanding 1 -
Common stock, par value $0.01 per share;
authorized
50,000,000 shares, issued 34,269,038 and
33,290,698 shares, and
outstanding 34,150,619 and 33,190,898 343 333
Additional paid-in capital 177,030 122,108
Retained earnings 3,561 2,619
Accumulated other comprehensive loss, net of tax (5,754) (1,162)
Less treasury stock, at cost, 118,419 shares and
99,800 shares (465) (246)
------------------
Total Stockholders' Equity 174,716 123,652
------------------

Total Liabilities and Stockholders' Equity $354,607 $143,801
==================
*T

-0-
*T
TXCO RESOURCES INC.
Condensed Consolidated Statements of Operations
(Unaudited)

Years Ended December 31
---------------------------
(in thousands, except earnings per share
data) 2007 2006 2005
---------------------------------------- ---------------------------
Revenues
Oil and gas sales $81,753 $56,520 $38,533
Gas gathering operations 11,958 15,853 28,430
Other operating income 195 45 37
---------------------------
Total Revenues 93,906 72,418 67,000

Costs and Expenses
Lease operations 14,105 7,248 6,470
Production taxes 4,672 2,551 2,180
Exploration expenses 1,222 2,968 3,266
Impairment and abandonments 1,983 1,722 1,406
Gas gathering operations 13,257 16,255 28,312
Depreciation, depletion and
amortization 36,202 23,840 12,597
General and administrative 12,058 7,298 5,439
---------------------------
Total Costs and Expenses 83,499 61,882 59,670
---------------------------

Income from Operations 10,407 10,536 7,330

Other Income (Expense)
Interest income 329 550 89
Interest expense (9,686) (269) (2,920)
Loan fee amortization (554) (216) (132)
Derivative mark-to-market gain (loss) - 1,995 (2,128)
Derivative settlements loss - (2,686) (9,115)
Gain (loss) on sale of assets 1 (8) 24,540
---------------------------
Total Other Income (Expense), Net (9,910) (634) 10,334
---------------------------

Income before income taxes 497 9,902 17,664
Income tax expense (benefit) -- current (5,301) 1,232 4,851
deferred 4,458 1,429 (928)
---------------------------

Net Income 1,340 7,241 13,741
Preferred dividends 397 - -
---------------------------
Net Income Available to Common
Stockholders $ 943 $ 7,241 $13,741
---------------------------

Earnings Per Share:
Basic $ 0.03 $ 0.23 $ 0.48
Diluted $ 0.03 $ 0.22 $ 0.48
Weighted average number of common shares
outstanding:
Basic 33,422 31,916 28,444
Diluted 34,740 33,247 28,885
*T

-0-
*T
TXCO RESOURCES INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Years Ended December 31
-----------------------------
(in thousands) 2007 2006 2005
--------------------------------------- -----------------------------
Operating Activities
Net (loss) income $ 1,340 $ 7,241 $ 13,741
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation, depletion and
amortization 36,756 24,056 12,597
Impairments, abandonments and dry
hole costs 2,436 1,722 1,406
(Gain) loss on sale of assets (1) 8 (24,540)
Deferred tax expense (benefit) 4,458 1,560 (928)
Non-cash interest expense -
redeemable preferred stock - - 684
Non-cash compensation expense 2,824 1,207 -
Non-cash derivative mark-to market
(gain) loss - (1,995) 2,128
Non-cash change in components of
OCI 1,524 806 -
Payment to terminate cash flow
hedge (2,356)
Changes in operating assets and
liabilities:
Receivables (8,820) 213 (984)
Prepaid expenses and other (6,027) 747 (469)
Accounts payable and accrued
expenses 35,590 (2,342) 44
Current income taxes
(receivable) payable (688) (8,499) 4,937
-----------------------------
Net cash provided by operating
activities 69,392 24,724 6,260
Investing Activities
Development and purchases of oil and
gas properties (117,311) (52,927) (49,672)
Purchase of subsidiary (95,994) - -
Purchase of other equipment (3,105) (6,941) (37)
Proceeds from sale of oil and gas
properties and other assets 6,001 23 78,002
-----------------------------
Net cash provided (used) by investing
activities (210,409) (59,845) 28,293
Financing Activities
Issuance of preferred stock, net of
expenses 52,777 - -
Purchase of lower call option (21,569) - -
Proceeds from sale of upper call
option 17,852 - -
Proceeds from bank credit facility 168,500 13,450 15,001
Payments on bank credit facility (70,851) (11,100) (32,099)
Payments on installment and other
obligations (577) (489) (1,761)
Proceeds from installment and other
obligations 710 494 356
Redemption of preferred stock - (16,000)
Purchase of treasury shares (219) - -
Proceeds from issuance of common
stock, net of expenses 343 30,565 2,915
-----------------------------
Net cash provided (used) by financing
activities 146,966 32,920 (31,588)
-----------------------------
Change in Cash and Equivalents 5,949 (2,201) 2,965
Cash and Equivalents at Beginning of
Year 3,882 6,083 3,118
-----------------------------
Cash and Equivalents at End of Year $ 9,831 $ 3,882 $ 6,083
=============================
Supplemental Disclosures:
Cash paid for interest $ 7,855 $ 213 $ 3,224
Cash paid for income taxes 415 10,581 158
*T

-0-
*T
TXCO RESOURCES INC.
SELECTED QUARTERLY FINANCIAL INFORMATION
SELECTED FINANCIAL INFORMATION - BALANCE SHEET

2007 2006
4TH 4TH
(in thousands) QUARTER QUARTER
-------------------------------------------- ----------- -----------

Current Assets $ 35,746 $ 18,369

Property and Equipment - Net 314,941 119,574

Other Assets 3,920 5,858
----------- -----------

Total Assets $ 354,607 $ 143,801
=========== ===========

Current Liabilities $ 59,658 $ 16,095

Long-Term Liabilities 120,233 4,054
Stockholders' Equity 174,716 123,652
----------- -----------

Total Liabilities and Stockholders' Equity $ 354,607 $ 143,801
=========== ===========
*T

-0-
*T
TXCO RESOURCES INC.
SELECTED QUARTERLY FINANCIAL INFORMATION
SELECTED FINANCIAL INFORMATION - INCOME STATEMENT

2007 2006
4TH 4TH
(in thousands, except per share data) QUARTER QUARTER
------------------------------------- ----------- -----------

Revenues
Oil and gas sales $ 28,880 $ 12,131
Gas gathering operations 3,086 3,123
Other 111 6
----------- -----------
Total Revenues 32,077 15,260

Costs and Expenses
Lease operations 4,071 1,920
Production taxes 1,657 381
Exploration expenses 300 2,008
Impairments and abandonments 1,693 628
Gas gathering operations 3,587 3,326
Depreciation, depletion and amortization 10,985 12,948
General and administrative 4,062 1,632
----------- -----------
Total Costs and Expenses 26,355 22,843
----------- -----------

Income (loss) from Operations 5,722 (7,583)

Other Income (Expense)
Interest income 91 79
Interest expense (3,319) (60)
Loan fee amortization (210) (42)
Derivative mark-to-market gain - 208
Derivative settlements (loss) - (146)
Gain on sale of assets 1 3
----------- -----------
Total Other Income (Expense) (3,437) 42
----------- -----------

Income (loss) before income tax 2,285 (7,541)
Income tax (benefit) expense 118 (3,138)
----------- -----------

Net Income (Loss) 2,167 (4,403)
Preferred dividends 397 -
----------- -----------

Net Income (Loss) Available to Common
Stockholders $ 1,770 $ (4,403)
=========== ===========
*T

-0-
*T
TXCO RESOURCES INC.
SELECTED QUARTERLY FINANCIAL INFORMATION
SELECTED FINANCIAL INFORMATION - INCOME STATEMENT (continued)

2007 2006
4TH 4TH
(in thousands, except per share data) QUARTER QUARTER
-------------------------------------- ----------- -----------

EBITDA(1) $ 20,039 $ 6,227
=========== ===========

EBITDAX(1) $ 20,339 $ 8,325
=========== ===========

Earnings per share - Reported
Basic $ 0.05 $ (0.13)
Diluted $ 0.05 $ (0.13)

EBITDA per share
Basic $ 0.60 $ 0.19
Diluted $ 0.57 $ 0.18

EBITDAX per share
Basic $ 0.61 $ 0.25
Diluted $ 0.58 $ 0.24

Weighted average number of common shares
outstanding
Basic 33,619 32,816
Diluted 34,987 33,908

Sales volumes - Oil and Gas
Gas (MMcf) 607 240
Oil (MBbl) 295 204
----------- -----------
Equivalent (MMcfe) 2,376 1,464
=========== ===========
*T

(1) See attached table for a reconciliation of these non-GAAP
financial measures.

-0-
*T
TXCO RESOURCES INC.
SELECTED QUARTERLY FINANCIAL INFORMATION
SELECTED FINANCIAL INFORMATION - CASH FLOWS

2007 2006
4TH 4TH
(in thousands) QUARTER QUARTER
------------------------------------------ ------------ -----------

Net income (loss) $ 2,167 $ (4,403)

Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation, depletion and amortization 11,194 12,990
Impairments, abandonments and dry hole
costs 1,693 628
Gain on sale of assets (1) (3)
Deferred tax expense 119 3,079
Non-cash change in components of other
comprehensive income - 806
Non-cash compensation expense 1,640 233
Non-cash derivative mark-to-market (gain)
loss - (208)
Changes in operating assets and
liabilities 25,244 (2,348)
------------ -----------

Net cash provided by operating activities $ 42,056 $ 10,774
============ ===========

Capital Expenditures $ 49,170 $ 15,711
============ ===========
*T

-0-
*T
TXCO Resources Inc.
SELECTED OPERATING DATA

Year Ended December 31,
($'s in thousands, except average prices) 2007 2006
-----------------------

Net cash provided in operating activities $ 69,392 $ 24,724

Ebitdax(1) 54,162 40,273

Ebitda(1) 52,939 37,305

Debt to asset ratio 28.3% 1.8%

Sales

Oil:
Sales, in mBbl 974 791
Average realized sales price per barrel,
excluding hedging impact $ 71.11 $ 62.56

Natural Gas:
Sales, in mmcf 2,125 1,104
Average realized sales price per mcf,
excluding hedging impact $ 7.26 $ 7.18

Equivalent Basis:
Sales in mBOE 1,328 975
Average realized sales price per BOE,
excluding hedging impact $ 63.77 $ 58.88

Sales in mmcfe 7,971 5,852
Average realized sales price per mcfe,
excluding hedging impact $ 10.63 $ 9.81

Other Operating Data
Total lifting costs $ 18,558 $ 9,800
Lifting costs per mcfe $ 2.33 $ 1.67

Sales volume - oil properties - mBbl 955 785
Oil prop. lifting costs-oil (Incl Prod &
Sev Tax) $ 13,742 $ 7,803
Oil prop. lifting costs per barrel $ 14.39 $ 9.94

Glen Rose Porosity sales volume - mBbl 705 683
Glen Rose Porosity lifting costs per barrel $ 8.99 $ 6.37

Sales volume - gas properties - mcf 2,048 1,023
Gas prop. lifting costs-gas (Incl Prod &
Sev Tax) $ 2,354 $ 1,958
Gas prop. lifting costs per mcf $ 1.15 $ 1.91

Total depletion cost per BOE $ 27.06 $ 24.26
Total depletion cost per mcfe $ 4.50 $ 4.04
*T

(1) See attached table for a reconciliation of these non-GAAP
financial measures.

-0-
*T
TXCO Resources Inc.
EBITDA And EBITDAX Reconciliation To Net Income
And Net Cash Provided For The Periods Indicated

Fourth Quarter of Full Year
------------------ ------------------
($ Thousands) 2007 2006 2007 2006
------------------ ------------------

Net cash provided by operating
activities 42,056 10,774 69,392 24,724
Change in operating assets and
liabilities 25,244 (2,348) 20,055 (9,881)
------------------ ------------------
Operating cash flow before
change in operating
assets & liabilities 16,811 13,123 49,337 34,605

Deferred income taxes (119) (3,079) (4,458) (1,560)
Interest, net 3,228 (19) 9,357 (281)
Net impact of hedges - (660) - 1,880
Income tax 119 (3,138) (843) 2,662
Exploration costs 300 2,008 1,222 2,968
Dry hole costs - - (454) -
------------------ ------------------

EBITDAX 20,339 8,235 54,162 40,273

Less: Exploration costs 300 2,008 1,222 2,968
------------------ ------------------

EBITDA 20,039 6,227 52,939 37,305

Less:
-------------------------------
(Gain) loss on sale of assets (1) (3) (1) 8
Income tax expense 119 (3,138) (843) 2,661
Impairment & abandonments 1,693 628 1,983 1,722
Derivative (gain) loss - (61) 1,524 691
Interest, net 3,228 (19) 9,357 (281)
Non cash compensation 1,639 234 2,824 1,207
DD&A 11,195 12,989 36,756 24,056
------------------ ------------------

Net income (loss) 2,167 (4,403) 1,340 7,241
================== ==================
*T

EBITDAX is earnings before income taxes, interest, depreciation,
depletion, amortization, impairment, abandonment and exploration
expense. EBITDA equals EBITDAX less exploration expense. We believe
EBITDA and EBITDAX provide a more complete analysis of TXCO's
operating performance and debt servicing ability relative to other
companies, and of our ability to fund capital expenditure and working
capital requirements.

These measures are widely used by investors and rating agencies.
EBITDA, with certain negotiated adjustments, is referenced in TXCO's
financial covenants and required in reporting under our credit
facility. EBITDA and EBITDAX are not measures of financial performance
under GAAP. Accordingly, they should not be considered as substitutes
for net income, income from operations, or cash flow provided by
operating activities prepared in accordance with GAAP.

Columns may not foot due to rounding.

TXCO Resources Inc.
Investors:
Roberto R. Thomae, 210-496-5300 ext. 214
bthomae@txco.com
or
Media:
Paul Hart, 210-496-5300 ext. 264
pdhart@txco.com

Copyright Business Wire 2008