TXCO Resources Reports Record Results and Earnings

-- Cash flow metrics;

-- Net and operating income;

-- Oil and gas sales;

-- Total assets.

Second Quarter

TXCO's net income attributable to common stock for the second quarter was $8.7 million, equal to $0.24 per share, in contrast to a $1.3 million loss, or $0.04 per share, for second-quarter 2007, and 166 percent above first-quarter 2008 net income of $3.3 million, or $0.09 per share. All per-share amounts are on a diluted basis. Quarterly operating income rose to a record $17.3 million from the $914,000 reported for the year-earlier period and, sequentially, a 163 percent increase from $6.6 million in the first quarter.

Net cash provided by operating activities for the quarter was a record $33.8 million, sharply above the $6.5 million in the year-earlier quarter and net cash used of $9.9 million in first-quarter 2008. Ebitdax - earnings before income taxes, interest, depreciation, depletion, amortization, impairment, abandonment and exploration expense - rose to a record $34.2 million, triple the $11.3 million in the prior-year quarter and 73 percent above the first quarter's $19.8 million. Ebitda - Ebitdax less exploration expense - was $33.6 million, compared to $11.0 million in the 2007 period and a 75 percent increase over the first quarter.

The Company's total revenues rose to a record $48.7 million, more than double the $22.3 million reported for second-quarter 2007 and 51 percent higher than the $32.3 million in revenues for first-quarter 2008. Oil and gas sales revenues increased sharply due to higher volumes and higher realized prices. Gas gathering revenues also increased.

First Half

For the January-June 2008 period, net income available to common stockholders was a record $12.0 million, equal to $0.34 per share. In the year-earlier period, the Company reported a $3.2 million loss, or $0.10 per share. Operating income for the half rose to a record $23.9 million from a $1.7 million operating loss for the 2007 first half. Revenues were a record $81.0 million, up 141 percent from $33.6 million for the earlier period as oil and gas sales rose sharply. Gas gathering revenues rose by 34 percent. Assets at June 30 stood at a record $424.9 million, 20 percent above the $354.6 million reported at year-end 2007.

Operating cash flow for the six months was $23.9 million, more than triple the $7.5 million reported in the year-earlier period. Ebitdax rose to $54.0 million from $16.0 million for the 2007 first half, while Ebitda also increased sharply to $52.8 million from $15.4 million.

Midyear Reserves

At June 30, TXCO's net proved reserves were estimated at 90.9 Bcfe before the third-quarter sale of approximately 3.7 Bcfe of proved reserves on 15 non-core properties located in South Texas and the Gulf of Mexico. First half oil and gas sales were 4.8 Bcfe. The Company's proved reserves were 54 percent crude oil and 46 percent natural gas, while approximately 59 percent of TXCO's oil and gas reserves were classified as proved developed. The Company's proved reserves at year-end 2007 were estimated at 91.8 Bcfe.

Midyear proved reserve numbers are based on internal estimates prepared in accordance with Securities and Exchange Commission and Financial Accounting Standards Board requirements.

Management Perspective

"TXCO's growth continued during the first half of 2008 as our higher oil and gas sales were accompanied by record commodity prices," said CEO James E. Sigmon. "Moreover our lifting costs declined further, enhancing cash margins. In fact, our cash margins in the second quarter reached 57 percent, compared to 42 percent in the first quarter. With our improved margins and a growing inventory of drill-ready projects, we foresee an excellent second half in 2008," he added. "Although worldwide oil and gas prices have declined in recent weeks, they remain at historic highs."

Conference Call

TXCO has scheduled a conference call for 10 a.m. CDT (11 a.m. EDT) Thursday, August 7, to discuss financial results and current operations. The call will be broadcast live via the Company 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 56389675. A replay will be available through Saturday, August 9, at 800-642-1687 (U.S./Canada) and 706-645-9291 (international), same passcode, and for 30 days at http://www.txco.com/concall.html.

Also, the Company will present at EnerCom's 13th Oil & Gas Conference, set for August 10-14 in Denver. TXCO is scheduled to present at 1:55 p.m. MDT (2:55 p.m. CDT) Monday, August 11. A webcast will be available via the Internet on TXCO's web site, http://www.txco.com/presentation.html, and the conference web site, www.theoilandgasconference.com.

About TXCO Resources

TXCO Resources is an independent oil and gas enterprise with interests in the Maverick Basin, the 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."

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 results, 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, 2007, and Form 10-Q for the quarter ended March 31, 2008. This 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)

June 30, December 31,
($ in thousands) 2008 2007
----------------------------------------------------------------------
Assets

Current Assets
Cash and equivalents $4,569 $9,831
Accounts receivable, net 37,829 17,952
Federal income tax receivable 4,974 4,974
Prepaid expenses and other 2,085 2,989
Accrued derivative asset - current 163 -
------------ ------------
Total Current Assets 49,620 35,746

Property and Equipment, net - successful
efforts method of accounting for oil and
gas properties 370,245 314,941

Other Assets
Deferred financing fees 3,449 2,613
Other assets 1,469 1,307
Accrued derivative asset - non-current 163 -
------------ ------------
Total Other Assets 5,081 3,920
------------ ------------

Total Assets $424,946 $354,607
============ ============
TXCO RESOURCES INC.
Condensed Consolidated Balance Sheets
(Unaudited)

June 30, December 31,
($ in thousands) 2008 2007
----------------------------------------------------------------------
Liabilities and Stockholders' Equity

Current Liabilities
Accounts payable and accrued liabilities $45,257 $51,261
Undistributed revenue 4,691 2,401
Notes payable 322 399
Derivative settlements payable 1,500 475
Preferred dividends payable 1,420 397
Accrued derivative obligation - short-term 18,407 4,725
------------- -----------
Total Current Liabilities 71,597 59,658

Long-Term Liabilities
Long-term debt 117,000 100,000
Deferred income taxes 6,586 12,007
Accrued derivative obligation - long-term 20,708 3,993
Asset retirement obligation 8,336 4,233
------------- -----------
Total Long-Term Liabilities 152,630 120,233

Stockholders' Equity
Preferred stock, authorized 10,000,000
shares;
Series A & B, -0- shares issued and
outstanding
Series C, -0- and 55,000 shares issued and
outstanding
Series D, 55,000 and -0- shares issued and
outstanding
Series E, 20,000 and -0- shares issued and
outstanding 1 1
Common stock, par value $.01 per share;
authorized 100,000,000 shares; issued
35,590,580 and 34,269,038 shares,
outstanding 35,423,727 and 34,150,619
shares 356 343
Additional paid-in capital 211,415 177,030
Retained earnings 15,539 3,561
Accumulated other comprehensive loss, net
of tax (25,601) (5,754)
Less treasury stock, at cost, 166,853 and
118,419 shares (991) (465)
------------- -----------
Total Stockholders' Equity 200,719 174,716
------------- -----------

Total Liabilities and Stockholders' Equity $424,946 $354,607
============= ===========
TXCO RESOURCES INC.
Condensed Consolidated Statements Of Operations
(Unaudited)

Three Months Three Months
Ended Ended
(in thousands, except earnings per share
data) June 30, 2008 June 30, 2007
----------------------------------------------------------------------
Revenues
Oil and gas sales $43,257 $19,136
Gas gathering operations 4,352 3,152
Other operating income 1,093 48
------------- -------------
Total Revenues 48,702 22,336

Costs and Expenses
Lease operations 4,203 4,238
Drilling operations 574 -
Production taxes 2,378 1,103
Exploration expenses 566 279
Impairment and abandonments 379 696
Gas gathering operations 4,394 3,356
Depreciation, depletion and
amortization 15,013 8,669
General and administrative 3,873 3,081
------------- -------------
Total Costs and Expenses 31,380 21,422
------------- -------------

Income from Operations 17,322 914

Other Income (Expense)
Interest expense (1,999) (2,863)
Interest income 25 77
Loan fee amortization (297) (159)
------------- -------------
Total Other Income (Expense) (2,271) (2,945)
------------- -------------

Income (loss) before income taxes 15,051 (2,031)
Income tax (benefit) expense -- current - 16
deferred 4,922 (733)
------------- -------------

Net Income (Loss) 10,129 (1,314)
Preferred dividends 1,420 -
------------- -------------
Net Income (Loss) Available to Common
Stockholders $8,709 $(1,314)
============= =============

Earnings (Loss) Per Share
Basic $0.25 $(0.04)
Diluted $0.24 $(0.04)
TXCO RESOURCES INC.
Condensed Consolidated Statements Of Operations
(Unaudited)

Six Months Six Months
Ended Ended
(in thousands, except earnings per share
data) June 30, 2008 June 30, 2007
----------------------------------------------------------------------
Revenues
Oil and gas sales $71,904 $27,861
Gas gathering operations 7,577 5,646
Other operating income 1,547 49
------------- -------------
Total Revenues 81,028 33,556

Costs and Expenses
Lease operations 8,435 6,898
Drilling operations 1,006 -
Production taxes 3,862 1,597
Exploration expenses 1,210 654
Impairment and abandonments 634 1,382
Gas gathering operations 7,781 6,237
Depreciation, depletion and
amortization 26,287 13,585
General and administrative 7,905 4,885
------------- -------------
Total Costs and Expenses 57,120 35,238
------------- -------------

Income (Loss) from Operations 23,908 (1,682)

Other Income (Expense)
Interest expense (4,233) (3,140)
Interest income 97 103
Loan fee amortization (587) (169)
------------- -------------
Total Other Income (Expense) (4,723) (3,206)
------------- -------------

Income (loss) before income taxes 19,185 (4,888)
Income tax (benefit) expense -- current - (5,250)
deferred 4,803 3,568
------------- -------------

Net Income (Loss) 14,382 (3,206)
Preferred dividends 2,404 -
------------- -------------
Net Income (Loss) Available to Common
Stockholders $11,978 $(3,206)
============= =============

Earnings (Loss) Per Share
Basic $0.35 $(0.10)
Diluted $0.34 $(0.10)
TXCO RESOURCES INC.
Condensed Consolidated Statements Of Cash Flows
(Unaudited)

Six Months Six Months
(in thousands, except earnings per share Ended Ended
data) June 30, 2008 June 30, 2007
----------------------------------------------------------------------
Operating Activities
Net income (loss) $14,382 $(3,206)
Adjustments to reconcile net income
(loss) to net cash (used) provided by
operating activities:
Depreciation, depletion and
amortization 26,874 13,754
Impairment, abandonments and dry hole
costs 634 1,836
Deferred tax expense 4,803 3,568
Excess tax benefits from stock-based
compensation (1,453) -
Non-cash compensation expense 1,928 571
Non-cash change in components of OCI - 1,524
Changes in operating assets and
liabilities:
Receivables (19,877) (5,897)
Prepaid expenses and other (681) (4,752)
Accounts payable and accrued expenses (2,664) 5,615
Current income taxes receivable (25) (5,527)
------------- -------------
Net cash provided by operating activities 23,921 7,486

Investing Activities
Development and purchases of oil and
gas properties (73,072) (37,291)
Purchase of other equipment (1,166) (2,554)
Purchase of subsidiary - (95,994)
------------- -------------
Net cash used by investing activities (74,238) (135,839)

Financing Activities
Proceeds from bank credit facility 28,000 154,100
Payments on bank credit facility (11,000) (22,851)
Proceeds from installment and other
obligations 190 119
Payments on installment and other
obligations (267) (260)
Issuance of preferred stock, net of
expenses 32,377 -
Purchase of lower call option (11,617) -
Proceeds from sale of upper call
option 9,356 -
Payment of preferred stock dividends (1,381) -
Cost of shares retired upon option
exercises (2,414) -
Excess tax benefits from stock-based
compensation 1,453 -
Proceeds from exercise of stock
options 850 -
Proceeds from issuance of common
stock, net of expenses 33 407
Purchase of treasury shares (525) (219)
------------- -------------
Net cash provided by financing activities 45,055 131,296
------------- -------------
Change in Cash and Equivalents (5,262) 2,943
Cash and equivalents at beginning of
period 9,831 3,882
------------- -------------
Cash and Equivalents at End of Period $4,569 $6,825
============= =============
TXCO RESOURCES INC.
SELECTED OPERATING DATA
Three Months Ended Six Months Ended
-------------------------- -----------------
($'s in thousands, except Mar. 31, June 30, June 30, June 30, June 30,
average prices) 2008 2008 2007 2008 2007
------------------------- -------- -------- -------- -------- --------

Net cash provided (used)
in operating activities $(9,851) $33,772 $ 6,486 $23,921 $ 7,486

Average common shares
outstanding for diluted
earnings per share 35,265 40,247 33,496 35,393 33,242

Ebitdax(a) 19,801 34,167 11,284 53,967 16,034

Ebitda(a) 19,156 33,601 11,006 52,757 15,380

Current ratio 1.05 0.69 1.66 0.69 1.66
Debt to asset ratio 28.9% 27.6% 44.5% 27.6% 44.5%

Sales
-------------------------
Oil:
Sales, in mBbl 247 308 241 555 392
Average realized sales
price per barrel, $ 97.33 $122.76 $ 61.58 $111.44 $ 59.03
excluding hedging
impact of: $ (5.84) $(10.87) $ (0.39) $ (8.64) $ (1.76)

Natural Gas:
Sales, in mmcf 665 813 644 1,478 865
Average realized sales
price per mcf, $ 9.07 $ 11.05 $ 7.44 $ 10.16 $ 7.39
excluding hedging
impact of: $ 0 $ (0.24) $ (0.59) $ (0.14) $ (1.76)

Equivalent Basis:
Sales in mBOE 358 444 348 802 536
Average realized sales
price per BOE, $ 84.25 $105.51 $ 56.35 $ 95.92 $ 55.08
excluding hedging
impact of: $ (4.04) (8.00) $ (1.37) $ (6.23) $ (3.13)

Sales in mmcfe 2,148 2,662 2,088 4,810 3,218
Average realized sales
price per mcfe, $ 14.04 $ 17.59 $ 9.39 $ 15.99 $ 9.18
excluding hedging
impact of: $ (0.67) $ (1.34) $ (0.23) $ (1.04) $ (0.52)

Other Operating Data
Total lifting costs $ 5,716 $ 6,581 $ 5,347 $12,297 $ 8,463
Total lifting costs
per BOE $ 15.96 $ 14.84 $ 15.36 $ 15.34 $ 15.78
Total lifting costs
per mcfe $ 2.66 $ 2.47 $ 2.56 $ 2.56 $ 2.63

Sales volume -oil
properties -mBbl 237 298 229 535 378
Oil prop. lifting
costs-oil (Incl Prod
& Sev Tax) $ 4,223 $ 5,940 $ 4,192 $10,163 $ 6,708
Oil prop. lifting
costs per barrel $ 17.80 $ 19.93 $ 14.08 $ 18.98 $ 17.73

Glen Rose Porosity
sales volume -mBbl 153 226 162 379 285
Glen Rose Porosity
lifting costs per
barrel $ 10.02 $ 12.35 $ 9.12 $ 11.41 $ 10.61

Sales volume -gas
properties -mmcf 619 709 605 1,327 814
Gas prop. lifting
costs-gas (Incl Prod
& Sev Tax) $ 1,493 $ 2,030 $ 1,990 $ 3,523 $ 2,534
Gas prop. lifting
costs per mcf $ 2.41 $ 2.86 $ 3.29 $ 2.65 $ 3.11

Total depletion cost
per BOE $ 31.31 $ 33.69 $ 24.62 $ 32.63 $ 25.02
Total depletion cost
per mcfe $ 5.22 $ 5.62 $ 4.10 $ 5.44 $ 4.17
(a) Please see the last page of this press release for a
reconciliation of these non-GAAP financial measures.
TXCO RESOURCES INC.
EBITDA and EBITDAX RECONCILIATION TO
NET INCOME AND NET CASH PROVIDED
PERIODS INDICATED

($ Thousands) 1Q08 2Q08 YTD 1Q07 2Q07 YTD
----------------------- ----------------------
Net cash provided
(used) by operating
activities per CF Stmt (9,851)33,772 23,921 1,000 6,486 7,486

Change in operating
assets and liabilities (25,391) 2,145 (23,247) (8,669)(1,893)(10,562)
----------------------- ----------------------

Operating CF before
change in operating
assets & liabilities 15,541 31,627 47,168 9,670 8,379 18,049

Deferred income taxes 119 (4,922) (4,803) (4,301) 733 (3,568)
Cash portion of net
interest expense 2,163 1,973 4,136 251 2,786 3,037
Excess tax benefit from
stock-based
compensation 1,453 - 1,453 - - -
Derivative settlements
loss - - - 1,143 381 1,524
Income tax (119) 4,922 4,803 (965) (717) (1,682)
Exploration costs 644 566 1,210 375 278 654
Dry hole costs - - - (280) (175) (455)
Change in components of
other comprehensive
income - - - (1,143) (381) (1,524)
----------------------- ----------------------

Ebitdax 19,801 34,167 53,967 4,750 11,284 16,034

Less: Exploration costs 644 566 1,210 375 278 654
----------------------- ----------------------

Ebitda 19,156 33,601 52,757 4,375 11,006 15,380

Less:
Income tax expense (119) 4,922 4,803 (965) (717) (1,682)
Impairment &
abandonments 255 379 634 686 696 1,382
Derivative Loss - - - 1,143 381 1,524
Interest, net 2,163 1,973 4,136 251 2,786 3,037
Non cash compensation 1,041 887 1,928 226 345 571
DD&A 11,565 15,310 26,874 4,926 8,829 13,755
----------------------- ----------------------

Net Income (Loss) 4,252 10,129 14,382 (1,892)(1,314) (3,206)
======================= ======================

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/rows may not foot/cross-foot due to rounding.