Ann: Chairmans Letter , page-6

this was just sent out by one of the brokers from RBSMorgans..... I haven't added or subtracted anything. RichE

A quality oil/gas company increases reserves & production each year. By doing so it significantly adds to the capital value of its acreage - this is a process we often refer to as de-risking. Larger companies like to buy de-risked projects (all the hard work is done and you just need to monetise the oil/gas value by applying capital to drill out the wells - then sit back and collect the revenues.)

This is what BHP did with it takeover of Petrohawk in the Eagle Ford Shale at a 61% premium. It bought a de-risked project.

So within a week TXN releases updated reserves. Whatever reserves released will be doubled by the next 2 EFS wells.

Production is healthy and will increase significantly with the next 2 EFS wells.

De-risking the EFS locations is what drives the capital value of the acreage. This is what the spacing out of the wells to maximise the PUD (Proven but Undeveloped) locations is all about. The more PUD's the higher the capital value. Currently we have 33, after the next 2 wells we will have 45 - 50.

Remediation on the first 2 EFS has them on target. We will get production performance graphs here soon. The performance graphs will compare directly to Companies like Aurora and Antares so we can see where the Texon wells are situated. With Txn's wells producing 80% oil vs the McMullen average of 40% - TXN will look quite favourable by this comparison.

Sale of Projects
Be very clear here - TXN is a developer not a monetiser of acreage. Monetising assets takes huge capital. 75 EFS well locations at $8M per well is $600M - well beyond TXN's capacity. TXN develops acreage to a point and then looks for a sale after having added significant value by de-risking the acreage. This is what TXN does.
As the Leighton Olmos is quite developed, further wells here will not add to the capital value of the acreage - so its a big positive to sell it and there should be a ready market.
With EFS - after 4 or 5 wells the number of PUD locations will be close to maximum so it will be sold - this is a huge positive and the best capital spent vs sghareholder value increase result for the company. This is what development is all about.

Other Projects
The Wilcox looks good - further acreage for TXN to develop and exploit and ultimately sell as per its business plan
The Wandoo agreement is extremely valuable. Its spitting out good targets all the time. These targets will have significant value if drilled successfully. More targets are being found than TXN has cash or drill rig availability to drill. This is an enviable position for any small oil/gas company. A combination of drilling, joint ventures and farmouts should create significant value here. Looks like they have employed a very experienced local to manage this part of the business - good news.

The market is not giving TXN an appropriate value for all the good work its done to date.
Transaction values in the EFS and Olmos will give TXN cash in bank which will be hard to argue against from a share price perspective. This cash can be used to chase all the other huge value adding targets it will have.
Further news releases over the next month should highlight the significant value in this story