TXCO Resources Reports Record Results for 2007

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 http://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 http://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 http://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) 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 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, andoutstanding 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 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 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 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 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 ) 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   EBITDA1 $ 20,039 $ 6,227     EBITDAX1 $ 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   1 See attached table for a reconciliation of these non-GAAP financial measures. 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   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   Ebitdax1 54,162 40,273   Ebitda1 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 1 See attached table for a reconciliation of these non-GAAP financial measures. 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 operatingassets & 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   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.