10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.    20549
FORM 10-Q
[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended		Commission File No.
September 30, 2004		0-9120
THE EXPLORATION COMPANY OF DELAWARE, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE		84-0793089
(State or other jurisdiction of		(I.R.S. Employer I.D. No.)
incorporation or organization)
500 NORTH LOOP 1604 E.,  SUITE 250    SAN ANTONIO, TEXAS  78232
(Address of principal executive offices)
Registrant's telephone number, including area code:   (210) 496-5300
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES [X]		NO  [  ]
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
YES [X]		NO  [  ]
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of October 31, 2004.
Common Stock $0.01 par value		27,974,063
(Class of Stock)		(Number of Shares)
For more information and a print friendly version of this document go to www.txco.com.
Total number of pages is 18
1

PART I - FINANCIAL INFORMATION
ITEM 1.     FINANCIAL STATEMENTS.
THE EXPLORATION COMPANY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
	September 30, 2004		December 31, 2003
Assets
Current Assets
Cash and equivalents	$    4,841,420		$  6,180,560
Accounts receivable, net	6,733,357		4,837,965
Prepaid expenses	1,518,055		718,853
Total Current Assets	13,092,832		11,737,378
Property and Equipment, net - successful efforts    method of accounting for oil and gas properties	86,559,878		66,155,827
Other Assets
Deferred tax asset	5,232,718		5,232,718
Other assets	1,102,242		1,080,290
Total Other Assets	6,334,960		6,313,008
Total Assets	$105,987,670		$84,206,213
See notes to consolidated financial statements
2
THE EXPLORATION COMPANY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
	September 30, 2004		December 31, 2003
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable, trade	$  13,237,844		$  8,186,705
Other payables and accrued liabilities	4,903,512		3,709,016
Undistributed revenue	1,298,208		416,399
Current portion of long-term debt	1,604,340		1,752,286
Total Current Liabilities	21,043,904		14,064,406
Long-term Liabilities
Long-term debt, net of current portion	8,561,276		15,425,598
Redeemable preferred stock, Series B       (redemption value - $16 million)	10,766,056		10,135,335
Accrued dividends - preferred stock	177,729		57,732
Asset retirement obligation	1,648,600		1,537,600
Total Long-Term Liabilities	21,153,661		27,156,265
Minority Interest in Consolidated Subsidiaries	-		193,441
Stockholders' Equity
Preferred stock, Series A; authorized 10,000,000 shares       issued and outstanding -0- shares	- -		- -
Common stock, par value $.01 per share; authorized       50,000,000 shares; issued 28,073,863 and 22,242,849 shares,       outstanding 27,974,063 and 22,143,049 shares	280,738		222,428
Additional paid-in capital	83,874,670		63,976,021
Accumulated deficit	(20,119,296	)	(21,160,341	)
Less treasury stock, at cost, 99,800 shares	(246,007	)	(246,007	)
Total Stockholders' Equity	63,790,105		42,792,101
Total Liabilities and Stockholders' Equity	$105,987,670		$84,206,213
See notes to consolidated financial statements
3

THE EXPLORATION COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
	Three Months Ended				Three Months Ended
		September 30, 2004			September 30, 2003
Revenues
Oil and gas sales			$  7,846,365		$6,027,088
Gas gathering operations			7,464,545		3,364,162
Other operating income			6,120		2,631
Total Revenues			15,317,030		9,393,881
Costs and Expenses
Lease operations			1,242,615		1,158,760
Production taxes			446,183		348,225
Exploration expenses			696,430		292,928
Impairment and abandonments			579,968		641,725
Gas gathering operations			7,030,025		3,309,515
Depreciation, depletion and amortization			2,562,483		2,214,530
General and administrative			1,429,527		990,733
Total Costs and Expenses			13,987,231		8,956,416
Income from Operations			1,329,799		437,465
Other Income (Expense)
Interest income			8,313		10,754
Interest expense			(679,010	)	(403,296	)
Loan fee amortization			(9,486	)	(4,401	)
Total Other Income (Expense)			(680,183	)	(396,943	)
Income before income taxes and minority interest			649,616		40,522
Minority interest in income of subsidiaries			(3,094	)	17,944
Income before income taxes			646,522		58,466
Income tax expense			(46,702	)	-
Net Income			$     599,820		$     58,466
Earnings Per Share
Basic earnings per share			$0.022		$0.003
Diluted earnings per share			$0.021		$0.003
See notes to consolidated financial statements
4

THE EXPLORATION COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
	Nine Months Ended					Nine Months   Ended
	September 30, 2004					September 30, 2003
Revenues
Oil and gas sales	$20,957,990					$18,484,022
Gas gathering operations	20,340,020					9,863,948
Other operating income	10,926					2,553
Total Revenues	41,308,936					28,350,523
Costs and Expenses
Lease operations	3,918,242					3,211,075
Production taxes	1,288,423					1,151,498
Exploration expenses	1,446,212					1,294,529
Impairment and abandonments	1,613,768					1,517,875
Gas gathering operations	18,964,695					10,324,076
Depreciation, depletion and amortization	7,334,923					6,708,998
General and administrative	3,462,188					2,621,636
Total Costs and Expenses	38,028,451					26,829,687
Income from Operations	3,280,485					1,520,836
Other Income (Expense)
Interest income	27,724					21,314
Interest expense	(2,136,913			)		(666,576		)
Loan fee amortization	(68,437			)		(13,203		)
Total Other Income (Expense)	(2,177,626			)		(658,465		)
Income before income taxes, minority interest and    cumulative effect of change in accounting principle	1,102,859					862,371
Minority interest in income of subsidiaries	34,889					54,218
Income before income taxes and cumulative effect of change    in accounting principle	1,137,748					916,589
Income tax expense	(96,702			)		(50,000		)
Cumulative effect of change in accounting principle, net of tax	-					(74,000		)
Net Income	$  1,041,046					$    792,589
Earnings Per Share
Basic earnings before cumulative effect of change          in accounting principle	$0.041					$0.043
Cumulative effect of change in accounting principle	-					(0.004		)
Basic earnings per share	$0.041					$0.039
Diluted earnings before cumulative effect of change          in accounting principle	$0.040					$0.041
Cumulative effect of change in accounting principle	-					(0.003		)
Diluted earnings per share	$0.040					$0.038
See notes to consolidated financial statements
5
THE EXPLORATION COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
		Nine Months Ended					Nine Months Ended
		September 30, 2004					September 30, 2003
Operating Activities
Net income			$1,041,046				$    792,589
Adjustments to reconcile net income to    net cash provided by operating activities:
Depreciation, depletion and amortization			7,334,923				6,708,998
Impairment and abandonments			1,613,768				1,517,875
Minority interest in income of subsidiaries			(34,889		)		(54,218	)
Cumulative effect of change in accounting principle			-				74,000
Non-cash compensation expense on stock options and warrants			237,333				-
Non-cash interest expense and accretion of liability        - redeemable preferred stock			750,722				255,594
Net cash provided by operating activities,                before changes in operating assets and liabilities			10,942,903				9,294,838
Changes in operating assets and liabilities:
Receivables			(1,895,392		)		(1,498,444	)
Prepaid expenses and other			(799,202		)		(507,187	)
Accounts payable and accrued expenses			7,127,440				3,966,382
Net cash provided by operating activities			15,375,749				11,255,589
Investing Activities
Development and purchases of oil and gas properties			(27,807,179		)		(27,781,230	)
Purchase of other equipment			(220,890		)		(354,122	)
Net changes in minority interests			(158,552		)		77,865
Net cash used by investing activities			(28,186,621		)		(28,057,487	)
Financing Activities
Issuance of redeemable preferred stock, net of offering costs			-				9,170,632
Proceeds from issuance of common stock, net of expenses			18,484,000				5,819,679
Proceeds from long-term debt obligations			116,739				5,997,078
Payments on long-term debt obligations			(7,129,007		)		(1,063,280	)
Net cash provided by financing activities			11,471,732				19,924,109
Change in Cash and Equivalents			(1,339,140		)		3,122,211
Cash and equivalents at beginning of period			6,180,560				2,333,688
Cash and Equivalents at End of Period			$4,841,420				$ 5,455,899
See notes to consolidated financial statements
6

THE EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED SEPTEMBER 30, 2004 AND SEPTEMBER 30, 2003 (Unaudited)
1.     Basis of Presentation
The accompanying unaudited consolidated financial statements of The Exploration Company ("TXCO" or "the Company") have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. The accounting policies followed by the Company are set forth in Note A to the audited consolidated financial statements contained in the Company'sannual report on Form 10-Kfor the year ended December 31, 2003.
In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Certain reclassifications have been made to prior periods to conform to the current presentation. For further information, refer to the consolidated financial statements and footnotes thereto included in the Registrant Company's annual report on Form 10-K for the year ended December 31, 2003, which is incorporated herein by reference.
2.     Fair Value of Stock Options
At September 30, 2004, the Company had a stock-based employee compensation plan which is described more fully in Note F, "Stockholders' Equity," to the audited consolidated financial statements contained in the Company's annual report on Form 10-K for the year ended December 31, 2003. The Company accounts for this plan under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. No compensation cost related to grants of stock options is reflected in net income, as all options granted under the plan had an exercise price equal to, or greater than, the market value of the underlying common stock on the date of grant. Non-cash compensation expense of $237,333 was recognized in the third quarter of 2004 on one-year extensions of the expiration date for a non-qualifi ed option and for a warrant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation for the periods ended September 30:
Three Months Ended September 30:	2004	2003
Net income as reported	$599,820	$  58,466
Deduct: Total stock-based compensation expense determined under the fair value    based method for all awards, net of related tax effects	57,087	124,361
Pro forma earnings (loss)	$542,733	$ (65,895	)
Earnings per common share:
Basic, as reported	$0.022	$ 0.003
Basic, pro forma	$0.019	$(0.003	)
Diluted, as reported	$0.021	$0.003
Diluted, pro forma	$0.019	n/a
7

Nine Months Ended September 30:		2004		2003
Net income as reported		$1,041,046		$792,589
Deduct: Total stock-based compensation expense determined under the fair value    based method for all awards, net of related tax effects		163,094		124,361
Pro forma earnings		$  877,952		$668,228
Earnings per common share:
Basic, as reported		$0.041		$0.039
Basic, pro forma		$0.035		$0.033
Diluted, as reported		$0.040		$0.038
Diluted, pro forma		$0.034		$0.032
3.     Common Stock and Basic Income Per Share
As of September 30, 2004, the Company had outstanding warrants and options to purchase 3,458,833 shares of common stock at prices ranging from $0.98 to $6.00 per share. Of these, warrants and options to purchase 1,566,333 shares were exercisable at quarter end. The warrants and options expire at various dates through August 2013.
The following is a reconciliation of the numerator and denominator of the basic and diluted earnings per share computation:
	Shares	Income			Per Share     Amount
Three Months Ended September 30, 2004
Basic EPS:
Net income	27,962,487	$599,820			$0.022
Effect of dilutive options	634,740	-			(0.001	)
Dilutive EPS	28,597,227	$599,820			$0.021
Nine Months Ended September 30, 2004
Basic EPS:
Net income	25,421,169	$1,041,046			$0.041
Effect of dilutive options	770,993	-			(0.001	)
Dilutive EPS	26,192,162	$1,041,046			$0.040
Three Months Ended September 30, 2003
Basic EPS:
Net income	20,937,252	$58,466			$0.003
Effect of dilutive options	1,211,676	-			-
Dilutive EPS	22,148,928	$58,466			$0.003
Nine Months Ended September 30, 2003
Basic EPS:
Net income before cumulative effect of        change in accounting principle	20,322,292	$866,589			$0.043
Cumulative effect of change in accounting principle	-	(74,000	)		(0.004	)
Net income	20,322,292	792,589			$0.039
Effect of dilutive options	687,262	-			(0.001	)
Dilutive EPS	21,009,554	$792,589			$0.038
8

4.     Income Taxes

The Company has recorded a deferred tax asset for the amount expected to be realized through taxable earnings. In determining taxable earnings, the Company uses income projections reduced by graduating percentages to compensate for uncertainties inherent in future years' projections. TXCO computes total income tax expense based on the Company's estimated annualized federal income tax for the year, considering the impact of any change in the amount of deferred tax asset. The Company expects its current income tax to be minimized through utilization of net operating loss carryforwards. A current charge of $96,702 has been recorded for its corporate alternative minimum tax for the nine months ended September 30, 2004.

5.     Long-Term Debt

Bank Credit Facility: The Company has a $50 million senior secured revolving credit facility with Guaranty Bank (Facility), which has a three-year term expiring in 2007.

The credit facility is collateralized by all of the Company's proven oil and gas properties, with the borrowing base established on current levels of TXCO's oil and gas reserves, and features bi-annual redeterminations. Interest under the Facility is based on, at TXCO's option, (a) the London Interbank Offered Rate (LIBOR) plus an applicable margin ranging from 2.00% to 2.50% or (b) prime plus an applicable margin ranging from 0.00% to 0.25% (floating rate). The borrowing base was $12,300,000 at September 30, 2004, and was increased to $20,750,000 in October. At September 30, 2004, the Company had outstanding $8.6 million with a weighted average interest rate of 4.22%.

When borrowing under the agreement exceeds 50% of the borrowing base, the Company is required to hedge a portion of its production. The Company entered into financial price hedges on October 1, 2004. The Facility contains additional terms and conditions consistent with similarly positioned companies. These conditions include various restrictive covenants such as minimum levels of interest coverage, tangible net worth and current ratio, a maximum debt to EBITDAX ratio, restricting the payment of dividends other than the dividends payable under the redeemable preferred stock, and prohibiting a change of control or incurring additional debt. EBITDAX is earnings before income taxes, interest, depreciation, depletion, amortization, impairment, abandonment and exploration expense. The ratios used for determining compliance with the Facility are defined within that Facility and may not be equivalent to other uses of those terms. At September 30, 2004, the Company was not in techni cal compliance with the Current Ratio covenant, as the borrowing base redetermination was expected during the month of September. This timing issue was resolved by the increased borrowing base in October and a one-time waiver that was received from Guaranty Bank.

6.     New Accounting Pronouncements

On January 1, 2004, the Company adopted Financial Accounting Standards Board (FASB) Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46). This interpretation addresses consolidation of business enterprises of variable interest. The adoption of FIN 46 did not have a material impact on the Company's financial position or results of operations.

On October 13, 2004, the FASB concluded that proposed Statement 123R, "Share-Based Payment," which would require all companies to measure compensation cost for all share-based payments (including employee stock options) at fair value, would be effective for public companies for interim or annual periods beginning after June 15, 2005. The expected impact to the Company for options and warrants currently granted is not significant.

9

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL                    CONDITION AND RESULTS OF OPERATIONS

Certain statements in this report are not historical in nature, including statements of TXCO's and management's expectations, intentions, plans and beliefs, are inherently uncertain and are "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934. The following discussion should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in this Form 10-Q, and with the Company's latest audited consolidated financial statements and notes thereto, as reported in its Form 10-K for the year ended December 31, 2003. See "Disclosure Regarding Forward Looking Statements."

Overview

The Exploration Company is an independent oil and gas enterprise with interests primarily in the Maverick Basin in Southwest Texas. The Company 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. Its 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. The Company accounts for its oil and gas operations under the successful efforts method of accounting and trades its common stock on the Nasdaq Stock MarketSM under the symbol "TXCO."

At October 31, 2004, the Company had four rigs in operation on its extensive 554,000-acre position in the Maverick Basin, targeting at least seven separate formations for the production of oil and natural gas. Through the first nine months of 2004, drilling operations emphasized the Georgetown and Glen Rose formations. The 2004 CAPEX budget, revised in May 2004, totals just over $33 million and targets 66 new wells, including 27 Glen Rose wells and 28 Georgetown wells, as well as funding completion of a number of wells in progress at year-end 2003 and infrastructure improvements. The 2004 CAPEX is the second-largest drilling program in the Company's history.

TXCO reported net income of $600,000 and $1.0 million for the quarter and nine-month periods ended September 30, 2004, compared to $58,000 and $793,000 for the prior-year periods, respectively. While production remained relatively constant on a thousand cubic feet of gas equivalent (Mcfe) basis, oil and gas revenues were up 30.2% and 13.4% as compared to the third-quarter and nine-month periods of 2003, respectively, due to higher commodity price realizations. The increase in net income for the first nine months of 2004 compared to the 2003 period reflects a $2.5 million increase in oil and gas revenues and $1.8 million in higher margins on gas gathering operations. These revenue increases were offset by an increase of $1.5 million in interest expense from redeemable preferred stock debt and $707,000 higher lease operation expenses due to its growing number of producing wells. These factors are discussed in the Results of Operationssection.

The following table highlights certain operational data for the periods presented:

Third Quarter

Nine Month Period

Operational Data

2004

2003

Change

2004

2003

Change

Gas production (Mcf)

806,895

475,331

+69.8

%

2,228,471

1,522,452

+46.4

%

Oil  production (Bbls)

81,602

125,778

-35.1

%

228,751

347,951

-34.3

%

Combined production (Mcfe)

1,296,507

1,229,999

+5.4

%

3,600,977

3,610,158

-0.3

%

Net residue and NGL sales (MMbtu)

752,117

639,246

+17.7

%

2,737,265

1,835,626

+49.1

%

Gas sales price per Mcf

$5.62

$5.32

+5.7

%

$5.73

$5.70

+0.5

%

Oil sales price per Bbl

$40.61

$27.83

+45.9

%

$35.84

$28.18

+27.2

%

Residue & NGL sales price per MMbtu

$6.93

$5.11

+35.7

%

$6.59

$5.22

+26.2

%

Gas - daily exit rate (MMcf)

9.6

6.1

+57.4

%

9.6

6.1

+57.4

%

Oil  - daily exit rate (Bbls)

1,296

1,299

-0.2

%

1,296

1,299

-0.2

%

Combined daily exit rate (MMcfe)

17.4

13.9

+25.2

%

17.4

13.9

+25.2

%

10

On October 1, 2004, the Company entered into financial price hedges with Macquarie Bank Ltd. for 15,000 barrels of oil (BO) and 140,000 million British thermal units (MMBtu) of gas, each on a monthly basis for the next 12 months. These hedges are in the form of ratio swaps (the Swaps) and provide floor prices of $39.10 per BO and $5.37 per MMBtu on a basis adjusted to Houston Ship Channel prices for approximately 40% of its then current production levels. The Swaps also allow the Company to participate in 75% of potential upside price movement above the floor levels. For more information see the Form 8-K filed with the Securities and Exchange Commission on October 6, 2004.

Liquidity and Capital Resources

Liquidity is a measure of ability to access cash. The Company's primary needs for cash are for acquisitions, exploration and development of oil and gas properties, repayment of contractual obligations and working capital requirements. TXCO has historically addressed its long-term liquidity requirements through cash provided by operating activities, issuance of equity securities when market conditions permit, and sale of non-strategic assets. More recently, TXCO has used borrowings under its Credit Facility and cash proceeds from the issuance of its stock to supplement its historical sources of liquidity. The prices for future oil and natural gas production and the level of production have significant impacts on operating cash flows and are difficult to predict with a high degree of certainty. Management continues to examine alternative sources of long-term capital, including bank borrowings, issuance of debt instruments, issuance of stock, sales of non-strategic assets, and j oint-venture financing. Availability of these sources of capital and, therefore, TXCO's ability  to  execute  its  operating strategy  will  depend  upon a  number of  factors, some of  which are beyond its control. Management believes projected operating cash flows, cash on hand, and borrowings under the Credit Facility, will be sufficient to meet the requirements of TXCO's business. However, because future cash flows are subject to a number of variables, no assurances can be made that operations and other capital resources will provide cash in sufficient amounts to maintain planned levels of capital expenditures. Conversely, with increased levels of production and prices, capital expenditures could be raised over levels currently budgeted.

Private Placement: In May 2004, TXCO closed on a private placement of 4,266,668 shares of its common stock at a purchase price of $3.75 per share for net proceeds of $15.0 million. Included are warrants for an additional 1,280,000 common shares exercisable at $4.25 per share. The warrants become exercisable in November 2004 and expire in May 2008. Purchasers were primarily private, U.S.-based investment funds. Proceeds from the private placement were used to expand the Company's capital expenditure program, restore balance sheet liquidity, complement on-going operations and provide for general corporate purposes.

Bank Credit Facility: The Company has a $50 million senior secured revolving credit facility with Guaranty Bank (Facility), which has a three-year term expiring in 2007.

The credit facility is collateralized by all of the Company's proven oil and gas properties, with the borrowing base established on current levels of TXCO's oil and gas reserves, and features biannual redeterminations. Interest under the Facility is based on, at TXCO's option, (a) the London Interbank Offered Rate (LIBOR) plus an applicable margin ranging from 2.00% to 2.50% or (b) prime plus an applicable margin ranging from 0.00% to 0.25% (floating rate). The borrowing base was $12,300,000 at September 30, 2004, and was increased to $20,750,000 in October. At September 30, 2004, the Company had outstanding $8.6 million with a weighted average interest rate of 4.22%.

On October 1, 2004, TXCO entered into financial price hedges for a portion of its production in compliance with provisions of the Facility requiring hedging when borrowings exceed 50% of the borrowing base. The next semi-annual borrowing base review is currently scheduled for February 2005. At October 31, 2004, total borrowings under this agreement were $10.6 million, up $2.0 million from the quarter end balance of $8.6 million, with an unused borrowing base of $10.2 million available for future capital needs.

11

The Facility contains additional terms and conditions consistent with similarly positioned companies. These conditions include various restrictive covenants such as minimum levels of interest coverage, tangible net worth and current ratio, a maximum debt to EBITDAX ratio, restricting the payment of dividends other than the dividends payable under the redeemable preferred stock, and prohibiting a change of control or incurring additional debt. EBITDAX is defined as earnings before income taxes, interest, depreciation, depletion, amortization, impairment, abandonment and exploration expense. The ratios used for determining compliance with the Facility are defined within that Facility and may not be equivalent to other uses of those terms. At September 30, 2004, the Company was not in technical compliance with the Current Ratio covenant, as the borrowing base redetermination was expected during the month of September. This timing issue was resolved by the increased borrowing b ase in October and a one-time waiver that was received from Guaranty Bank.

Management believes the Facility, along with the Company's positive cash flow from existing production and anticipated production increases from new drilling, will provide adequate capital to fund operating cash requirements and complete its scheduled exploration and development goals for 2004. TXCO expects to further increase its borrowing base commensurate with the expected growth of its proved oil and gas reserves throughout the base term of the Facility.

Subsequent Events: In connection with the Swaps discussed in the Overview section, the Company entered into a one-year Letter of Credit Agreement (L/C) with Guaranty Bank. This agreement provided for the issuance of a Standby Letter of Credit representing a Hedge Commodity Agreement or Rate Management Transaction issued outside of the original borrowing base as stated in the Facility dated June 30, 2004. The agreement requires the payment of an administrative fee ranging from 2.0% to 2.5% per annum of the face amount of the L/C. The initial L/C amount was set at $1 million and subsequently increased to $2 million. No drafts or advances have been made against these L/C's through October 31, 2004.

In late October, TXCO entered into an agreement effective on September 1, 2004, to purchase a 6.1-mile portion of an existing, privately owned pipeline to serve the northwest portion of TXCO's lease block at a net price of $207,000. This purchase, and an associated five-year lease on an additional 1.7-mile segment of existing pipeline effective on November 1, 2004, expands our pipeline infrastructure to bring new Burr lease gas production to the market.

Sources and Uses of Cash: During the first nine months of 2004, TXCO increased cash reserves from $6.2 million at December 31, 2003, through cash provided by operating activities of $15.4 million. In addition, proceeds from a private placement of common stock, approximately $15.0 million net of expenses, along with net proceeds totaling $3.5 million from the exercise of warrants (purchasing 1,238,096 shares of common stock), resulted in total cash available of $40.1 million for use in meeting the Company's ongoing operational and development needs.

During the first quarter of 2004, TXCO used portions of the available cash to fund payments on debt totaling $2.5 million and related interest of $784,000. The Company applied $6.1 million to fund the ongoing development of its oil and gas producing properties.

During the second quarter, payments on debt totaled $7.0 million with $956,000 of related interest. This reflects a $6.8 million payment on bank debt made out of the proceeds from the private placement of common stock and warrants in May. In addition, approximately $6.9 million was invested in drilling activities during this period.

During the third quarter, net borrowings on debt totaled $2.4 million and payments for related interest were $609,000. Additionally, during this period, approximately $14.9 million was invested in drilling activities.

12

As a result of theincreased drilling in the third quarter, the Company ended the period with negative working capital of $8.0 million, compared to negative $2.3 million at December 31, 2003, while its current ratio declined to 0.63 to 1 compared to 0.83 to 1 at year end. The Company exited the third quarter with an unused borrowing base of $3.7 million available under its new credit facility. After the October increase in borrowing base, and a $2.0 million draw in mid-October, the unused portion is now $10.2 million. Ending working capital was impacted by increases in current liabilities, partially offset by higher accounts receivable and prepaid account balances. Cash flow from operating activities for the first nine months of 2004 increased to $15.4 million from $11.3 million in the comparative prior-year period, reflecting the impact of the working capital changes, higher non-cash expenses and increased net income. Adjusting for changes in operating assets and liabilities, cash flow from operating activities for the first nine months of 2004 was $10.9 million in 2004 compared to $9.3 million for the first nine months of 2003, a 17.7% increase over the same period a year ago. Changes in operating assets include increases or decreases in accounts receivable, accounts payable and prepaid expenses from the prior year-ends.

Results of Operations

The following table highlights the change from comparable periods in 2003:

Third Quarter

Nine Month Period

Change in Selected Income Statement Items

$thousands

%

$thousands

%

Oil and gas revenues

+1,819

+30.2

+2,474

+13.4

Lease operations

+84

+7.2

+707

+22.0

Impairment & abandonments

-62

-9.6

+96

+6.3

Depreciation, depletion & amortization (DD&A)

+348

+15.7

+626

+9.3

Income from operations

+892

+204.0

+1,760

+115.7

Net income

+541

+925.9

+248

+31.3

The increases in oil and gas revenues for both 2004 periods presented as compared to the same periods of 2003 are attributable to higher gas production along with higher oil and natural gas prices, partially offset by a decline in oil production. Gas sales volumes increased 69.8% and 46.4% for the third quarter and first nine months of 2004, respectively, primarily due to Georgetown and Glen Rose shoal wells put on production since September 30, 2003. This increase was offset by lower oil production, primarily related to fewer wells drilled with our operating partner on the Comanche lease, compared to  the same 2003 periods. Production gains of 5.4% on a Mcfe basis in the 2004 third quarter, over the same 2003 period, offset lower operating levels in the first half of 2004 resulting in essentially flat overall production levels for the nine month periods. While average gas sales prices are up 5.7% for the third quarter of 2004 over 2003, year-to-date averages are flat with those for the first nine months of 2003 due to lower prices in the first quarter of 2004.

The increase in lease operating expenses for the first nine months of 2004 over the prior period primarily reflects costs related to 48 additional Maverick Basin oil and gas wells placed on production since September 30, 2003. Lease operation expenses were impacted by approximately $94,000 in non-recurring charges for repairs related to severe weather and flooding on the southern portion of our lease block in the first half of 2004.

The Company's gas gathering system transports its production to various markets. It also transports production for other owners at a set rate per MMbtu. It sells gas at several points along the system with a significant portion being delivered to purchasers through the Enterprise/Gulf Terra Pipeline System (Enterprise). Enterprise processes gas delivered through it to remove natural gas liquids, which it markets separately. The Company receives a share of the revenues for these liquids. Natural gas pricing fluctuations are reflected at the wellhead for the Company's operated gas properties.

During the third quarter and first nine months of 2004, gas gathering operations revenues increased 121.9% and 106.2%, respectively, due to higher sales volumes and prices for both residue gas and natural gas liquids, when compared to the same periods of 2003. The increase is consistent with the increased number of gas wells connected to the gathering system compared to the prior period.

13

The following table summarizes the change from comparable periods in 2003:

Third Quarter

Nine Month Period

Change in Gas Gathering Results:

$thousands

%

$thousands

%

Revenues:

Third-party natural gas sales

+2,779

+106.2

+7,786

+99.8

Natural gas liquids sales

+1,322

+204.0

+2,705

+151.6

Transportation and other revenue

-1

-0.6

-15

-5.4

Total gas gathering revenues

+4,100

+121.9

+10,476

+106.2

Expense:

Third-party gas purchases

+3,598

+118.3

+8,333

+87.1

Transportation and marketing expenses

+61

+63.3

+146

+55.1

Direct operating costs

+62

+35.9

+162

+33.2

Total gas gathering operations expense

+3,721

+112.4

+8,641

+83.7

Gross margin

+379

+689.1

+1,835

+398.9

Operational data

Total sales volumes (MMbtu)

+112,871

+17.7

+901,639

+2.1

Average sales price (per MMbtu)

+$1.82

+35.7

+$1.37

+26.2

The increases in DD&A for the three and nine month periods of 2004 over the comparable prior-year periods resulted primarily from higher depletion, up $318,000 and $525,000, respectively, consistent with the growing number of producing wells subject to depletion and with increased depletion rates due to the maturing profile of existing producing wells.

In the third quarter of 2004, the Company recorded $237,000 in non-cash compensation charges relating to the one-year extensions on the expiration date for a non-qualified option and warrant. Excluding this compensation charge, General and administrative expense (G&A) would have been $3.2 million representing 7.8% of revenues for the nine months ended September 20, 2004, and up 23% from $2.6 million for the same period in 2003. Including the charge, G&A increased 32.1% over the prior year period and represented 8.4% of total revenues. G&A for the same period in 2003 was 9.2% of revenues. Other increases in G&A included higher compensation related expense for two additional employees hired since September 30, 2003, with their associated salaries, wages, benefits and office-related expenses, and a full-year of expense related to staff additions during 2003. Staffing at September 30, 2004, was 47, as compared with 44 at September 30, 2003, and 35 at December 31, 2002. In addition, increased activity levels resulted in higher costs for independent engineer's services, franchise taxes and investor communications. Higher costs for information systems reflect a full nine months of the new systems implemented during 2003. Partially offsetting these higher costs were lower consulting costs, down $59,000, primarily due to bringing in-house certain functions previously performed by consultants. The majority of the increases in general and administrative costs are consistent with the expanded compliance burden mandated by the Sarbanes-Oxley Act (SOA). For the first nine months of 2004, management estimates its total costs associated with SOA compliance to be approximately $131,000 including consulting, software and internal payroll-related costs. Management also anticipates these costs to increase in the final quarter of 2004 in conjunction with continuing costs for SOA section 404 compliance.

Interest expense for the first nine months of 2004 increased by $1,470,000 over the same period of 2003 primarily due to the issuance of $16 million in redeemable preferred stock debt in August 2003. Of this, $592,000 reflects non-cash charges for accretion of the debt to its full redemption value by August of 2009 and amortization of related issue costs. For the third quarter of 2004, interest on the preferred was $597,000, of which $136,000 represented non-cash charges. The income tax expense recorded in the first nine months of 2004 reflects corporate alternative minimum taxes expected to be incurred for 2004.

14

Drilling Activities

Activity increased in the third quarter of 2004 with 23 wells spudded, up from 17 and 11 in the second and first quarters, respectively. The Company drilled or participated in drilling 51 new wells on its lease block in the Maverick Basin in the first nine months of 2004. At September 30, 2004, 32 of these wells were producing, 13 wells were in completion, two wells were awaiting pipeline connection, two wells remained drilling and two wells were shut in pending further evaluation. By comparison, the Company drilled 60 wells during the first nine months of 2003. TXCO also participated in one new well and two re-entries on its Williston Basin acreage, all of which are producing oil.

The Company had as many as seven rigs drilling on our Maverick Basin leases during the third quarter of 2004. There were as few as two rigs running during portions of the first half of 2004. A combination of poor weather and corporate restructuring by one of our operating partners reduced drilling activity during the first six months of this year. TXCO also saw an increase in wells put on production in the third quarter, with 20 wells coming on production compared with 14 during the first half of 2004 including one reentry in each period. During October 2004, TXCO drilled or participated in six new wells.

The Company exited the third quarter of 2004 with total net daily production of 1,296 barrels of oil per day (BOPD) and 9.6 million cubic feet per day (MMcfd) of natural gas, a combined 17.4 million cubic feet equivalent per day (MMcfed). Six completed wells were curtailed or waiting on pipeline connections at September 30, 2004, that could have added additional production. At October 31, 2004, total net daily production increased to 19.9 MMcfed as wells completed in the third quarter were placed on production. The comparable daily production rates at year-end 2003 were 1,200 BOPD and 8.9 MMcfd, equal to 2,674 BOE or 16.0 MMcfed.

Glen Rose - Through September 30, TXCO has spudded 17 Glen Rose wells, with 10 producing, one awaiting a pipeline connection, and three awaiting completion. The wells spudded include nine targeting shoals, seven targeting reefs and one targeting the porosity zone. All of the shoal wells, and the porosity well, were producing at October 31, 2004. For the reef wells at October 31, 2004, two were producing, two await completion, and three had been recompleted to and were producing from the Georgetown formation. Net Glen Rose production at September 30, 2004, was 427 BOPD and 5.4 MMcfd. At October 31, net Glen Rose production had risen to 629 BOPD and 6.0 MMcfd.

In the Glen Rose porosity play, a second well, the Comanche 2-14H (50% WI), was drilled and went on production in late October, flowing approximately 500 BOPD and no water. Meanwhile, the Comanche 2-39H (50% WI) continued to flow 370 BOPD in late October and has produced water-free oil since it began production in August. Both wells were drilled using a new technique in which the horizontal wellbore parallels fractures within the formation, minimizing water intrusion from a separate, lower zone.

In the Glen Rose reef play, TXCO placed the Burr C 1-56 (100% WI) on production in late October flowing 1.2 MMcfd. Weather and pipeline construction delays postponed the start of production since the well's completion in the third quarter. Meanwhile, three wells originally targeting Glen Rose reefs, which proved wet, have been successfully completed as horizontal Georgetown wells. In the Glen Rose shoal play, the Chittim 1-131H, (52% WI) went on production in late October at 825 Mcfd. One additional Glen Rose shoal well was spudded in late October.

Georgetown - The Company spudded six new Georgetown wells in the third quarter, bringing total wells spudded to 20 of the 28 new Georgetown wells planned for this year in addition to the three Georgetown completions originally targeting Glen Rose reefs. Three additional Georgetown wells were spudded in October 2004, with two awaiting completion and one drilling at month end. Net Georgetown production at September 30, 2004, was 3.7 MMcfd and 319 BOPD, and at October 31, 2004 was 5.1 MMcfd and 254 BOPD.

15

Fifteen Georgetown wells were drilled on the southern portion of TXCO's acreage block in the first nine months of 2004, including five spudded in the third quarter. Of these, through October 31, 2004, nine have been placed on production, five are in progress or awaiting completion while one had a mechanical failure. The Comanche W 1-2H (50% WI) flow tested from the Georgetown formation at rates as high as 1.4 MMcfd and 15 BOPD. The well went on production in late October at 1.0 MMcfd. On tests in early November, the Gary 1H well flowed at 240 BOPD and 611 Mcfd.

On the northern portion of the Company's acreage block, five Georgetown wells were drilled through September 30, 2004, including one spudded in the third quarter. Three additional wells were spudded in October. Of these eight wells, one is producing, two await completion, and one is drilling while four are shut in pending further evaluation as of October 31, 2004. The Burr A 1-16H tested at a rate of 384 BOPD in early November.

As to the three former Glen Rose reef wells, the Burr C 1-231.5H (100% WI) tested at 1.5 MMcfd and was placed on production in October flowing 860 thousand cubic feet per day (Mcfd). The Burr C 1-53H, (100% WI) went on production in early October pumping 157 BOPD. The Burr C 1-60 (100% WI) was placed on production in October at 117 BOPD.

San Miguel Waterflood - TXCO spudded 13 San Miguel oil wells this year, including 10 budgeted for its Pena Creek project (100% WI). At September 30, 2004, all 10 Pena Creek wells were on production. San Miguel oil production at September 30, 2004, was 371 BOPD. In the third quarter of 2004, TXCO spudded two wells to begin testing a new San Miguel sand on the west end of the Comanche Ranch. One additional San Miguel well was spudded in mid-October and was awaiting completion at month end. San Miguel production at October 31, 2004, included 344 BOPD and 146 Mcfd. This is a temporary decline in production due to construction of a new tank battery on the northern portion of the Pena Creek lease.

To date, 11 water injection well workovers have been completed as part of a program to enhance water injection efficiency and increase oil output in the Pena Creek Unit.

Pearsall - The Taylor 132-1 (97.5% WI) is producing gas through temporary production facilities from Pearsall perforations following fracture stimulation. This lower Cretaceous interval lies below the Glen Rose formation and above 7,500 feet. The well was producing approximately 200 Mcfe at October 31. Further testing continues.

Jurassic - Blue Star Oil and Gas, Ltd., Dallas, the Company's operating partner in the Jurassic play, has reaffirmed plans to drill a second Jurassic wildcat in the Maverick Basin utilizing formation data gained from the Taylor wildcat to select a location. TXCO's 2004 drilling budget currently includes no provision for a second Jurassic well as Blue Star would pay 100 percent of drilling costs while carrying TXCO for a 25 percent working interest if a second well is drilled on TXCO's lease block.

Coalbed Methane - The Company'shorizontal re-entryattempts on two existing coalbed methane (CBM) dewatering wells (100% WI), using new multiple short-radius lateral (MSRL) technology, were delayed by mechanical difficulties. Design engineers are working to refine the MSRL tool design. If successful, the MSRL technique could significantly increase dewatering volumes and associated CBM gas production going forward.

TXCO exited 2003 with 36 wells dewatering in its CBM pilot program targeting production from the multiple seams of high-volatile bituminous coal present under its leases. At September 30, 2004, the net CBM production rate was approximately 120 Mcfd with 1,389 barrels of water per day after being shut down for some time due to flooding and related electricity interruptions. The Company believes the next phase of this project will require 25 to 50 wells initially, during which the Company expects to establish economic production quantities.  The Company may seek an industry partner or project-type financing,  which it believes is more suitable for this project due to its cash flow profile, as well as complementing the Company's existing capital structure. The Company may sell an interest in the CBM project to an industry partner with CBM expertise. To date, several potential industry partners have expressed an interest in TXCO's project. There are no new CBM wells i ncluded in the 2004 CAPEX budget. The Company continues to believe this project will add significant reserves in the coming years.

16

Red River B Zone - The Company participated in the drilling of one new well (0.58% WI) and two re-entries (30.0% and 0.58% WI), all horizontal laterals, in the Williston Basin with its operating partner Luff Exploration Company. All three wells are currently producing oil. Net Williston Basin production at September 30, 2004, was 150 BOPD and 154 Mcfd.

Disclosure Regarding Forward Looking Statements

Statements in this Quarterly Report on Form 10-Q which 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 expected drilling plans, including timing, category, number, depth, cost and/or success of wells to be drilled, expected geological formations or the availability of specific services or technologies. 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 rese rves can be sold, environmental concerns affecting the drilling of oil and natural gas wells, as well as general market conditions, competition and pricing. Please refer to TXCO's Securities and Exchange Commission filings for additional information. This and all TXCO's previously filed documents are on file at the Securities and Exchange Commission and can be viewed on TXCO's website at www.txco.com. Copies of which are available from the Company without charge.

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

There have been no material changes in the reported market risks faced by the Company since December 31, 2003. See the Company's Annual Report on Form 10-K, "Item 7A. Quantitative and Qualitative Disclosures About Market Risk"

ITEM 4.     CONTROLS AND PROCEDURES.

a.      The Company's Chief Executive Officer and the Chief Financial Officer have carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14 and Rule 15d-14 as of September 30, 2004. Based upon that evaluation, the Company's Chief Executive Officer along with the Chief Financial Officer concluded that the disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in our periodic SEC filings.

b.       There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date of the above evaluation.

PART II - OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

None

ITEM 2.      CHANGES IN SECURITIES

None

ITEM 3.      DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5.      OTHER INFORMATION

None

17

ITEM 6.      EXHIBITS

a)     Exhibit 10.1   Energy Option Transaction Confirmation dated October 5, 2004, between the registrant and Macquarie Bank Limited - OBU.

b)     Exhibit 10.2   Letter of Credit Agreement dated October 7, 2004, between the registrant and Guaranty Bank.

c)     Exhibit 31.1   Certification of Chief Executive Officer required pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended filed herewith.

d)     Exhibit 31.2   Certification of Chief Financial Officer required pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended filed herewith.

e)     Exhibit 32.1   Certification of Chief Executive Officer required pursuant to 18 U.S.C. Section 1350 as required by the Sarbanes-Oxley Act of 2002 filed herewith.

f)     Exhibit 32.2   Certification of Chief Financial Officer required pursuant to 18 U.S.C. Section 1350 as required by the Sarbanes-Oxley Act of 2002 filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

THE EXPLORATION COMPANY

(Registrant)

/s/ P. Mark Stark

P. Mark Stark,

Chief Financial Officer

Date:  November 9, 2004

18

EX-10

Exhibit 10.1
Macquarie Bank Limited
ABN 46 008 583 542
1 Martin Place	Telephone:	Please telephone
SYDNEY NSW 2000	(612) 8283 XXXX	Robert Trevena on
GPO Box 4294	Facsimile:	(612) 8232 6766
SYDNEY NSW 1164	(612) 8282 XXXX	if complete transmission not received.
SWIFT MACQAU2SOBU	Email Address:
	tcgemset@macquarie.com
05 October 2004
Attn: MARK STARK
Energy Settlements
THE EXPLORATION COMPANY OF DELAWARE INC
500 N LOOP 1604 EAST, SUITE 250
SAN ANTONIO TX 78232
USA
Facsimile Number: 001112104963232
Energy Option Transaction Confirmation
Deal Ref. No: HH_0509768-9
The purpose of this letter is to set forth the terms and conditions of the transaction entered into between THE EXPLORATION COMPANY OF DELAWARE INC ("ECDOBUHS") and Macquarie Bank Limited - OBU ("MBL - OBU") on the Trade Date specified below (the "Transaction").
This Confirmation evidences a complete binding agreement between you and us as to the terms of the Transaction to which this Confirmation relates. In addition, you and we agree to use all reasonable efforts promptly to negotiate, execute and deliver an agreement in the form of the 1992 ISDA Master Agreement (Multicurrency-Cross Border) (the "ISDA Form"), with such modifications as you and we will in good faith agree. Upon the execution by you and us of such an agreement, this Confirmation will supplement, form a part of, and be subject to that agreement. All provisions contained or incorporated by reference in that agreement upon its execution will govern this Confirmation except as expressly modified below.
Until we execute and deliver that agreement, this Confirmation, together with all other documents referring to the ISDA Form (each a "Confirmation") confirming transactions (each a "Transaction") entered into between us (notwithstanding anything to the contrary in a Confirmation), shall supplement, form a part of, and be subject to an agreement in the form of the ISDA Form, as if we had executed an agreement in such form (but without any Schedule) on the Trade Date of the first such Transaction between us. In the event of any inconsistency between the provisions of that agreement and this Confirmation, this Confirmation will prevail for the purpose of this Transaction.
This Confirmation confirming the terms of the Transaction between the parties is subject to any set of ISDA Definitions in existence from time to time which are specifically relevant to this Transaction (the "Definitions") each as published by either the International Swaps & Derivatives Association, Inc., or the International Swap Dealers Association, Inc., as the case may be. Any amendment to such definitions subsequent to their initial publication will only be effective with respect to this Transactions by agreement between the parties.
This Confirmation and the Transaction will be governed by and construed in accordance with the law of the state of New York (without reference to choice of law doctrine).

Macquarie Bank Limited
1.	Transaction Particulars: The terms of the particular Transaction to which this Confirmation relates are as follows:
	[terms not disclosed for this filing]
2.	Representations: The parties make the following representations and undertakings:
	(a)	Relationship between Parties. Each party will be deemed to represent to the other party on the date on which it enters into a Transaction that (absent a written agreement between the parties that expressly imposes affirmative obligations to the contrary for that Transaction):
		(i)	Full power and authority. It has full power and authority to enter into this Transaction and to perform and comply with the terms and provisions of this Confirmation and execution and delivery of this Confirmation does not and will not result in a breach of any of its' constituent document or internal guidelines.
		(ii)	Non-Reliance. It is acting for its own account, and it has made its own independent decisions to enter into that Transaction and as to whether that Transaction is appropriate or proper for it based upon its own judgment and upon advice from such advisers as it has deemed necessary. It is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into that Transaction, it being understood that information and explanations related to the terms and conditions of a Transaction shall not be considered investment advice or a recommendation to enter into that Transaction. No communication (written or oral) received from the other party will be deemed to be an assurance or guarantee as to the expected results of that Transaction.
		(iii)	Assessment and Understanding. It is capable of assessing the merits of and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of that Transaction. It is also capable of assuming, and assumes the risks of that Transaction.
		(iv)	Status of Parties. The other party is not acting as a fiduciary or adviser for it in respect of that Transaction.
	(b)	No Agency. It is entering into this Agreement, including each Transaction, as principal and not as agent of any person or entity.
	(c)	Eligible Contract Participant. With respect to all Transactions in "excluded commodities" as that term is defined in section 1a(13) of the U.S. Commodity Exchange Act, as amended (the "CEA") and all Transactions in "exempt commodities" as that term is defined in section 1a(14) of the CEA, ECDOBUHS represents and warrants that it is an "eligible contract participant" as such term is defined in section 1a(12) of the CEA.
	(d)	Eligible Commercial Entity. With respect to all Transactions in "exempt commodities" as that term is defined in section 1a(14) of the CEA, ECDOBUHS represents and warrants that it is an "eligible commercial entity" within the meaning of section 1a(11) of the CEA.

Macquarie Bank Limited
3.	It will be an Additional Termination Event in relation to ECDOBUHS if the Credit Support Document is not received by MBL - OBU on or before close of business (London time) on 7th October 2004. The Affected Party will be ECDOBUHS.
4.	Credit Support Document: In relation to ECDOBUHS, a Letter of Credit issued by a bank acceptable to MBL - OBU in form and content acceptable to MBL - OBU.
	Credit Support Provider: In relation to ECDOBUHS, to be advised.
5.	Additional Credit Support. In the event that ECDOBUHS's Exposure, as calculated by MBL - OBU, is greater than USD [to be advised] , Counterparty shall provide to MBL - OBU an additional letter of credit in form and content acceptable to MBL - OBU, and issued by a bank acceptable to MBL - OBU, in the amount of USD [to be advised] (the "Additional Letter of Credit"). Such Additional Letter of Credit must be provided within 5 Business Days of notification from MBL - OBU and will constitute a Credit Support Document. Failure to provide the Additional Letter of Credit as required by this provision will be an Additional Termination Event, with ECDOBUHS being the Affected Party.
	For the purposes of this provision, "Exposure" means the amount that would be payable by ECDOBUHS to MBL - OBU pursuant to Section 6(e)(ii)(1) of the ISDA Form if all Transactions existing between the parties were being terminated as of 5pm New York time on any Business Day, and Exposure shall be determined by MBL - OBU on the basis of mid-market valuations.
6.	The Cross Default provisions of Section 5(a)(vi) will apply to MBL - OBU and ECDOBUHS.
	Threshold Amount means 3% of consolidated shareholders' funds, or its equivalent in another currency (being the amount of that other currency required to purchase the relevant amount at the rate equal to the spot exchange rate of any foreign exchange agent selected in good faith by the party asserting that a Cross Default has occurred).
7.	Netting: Subparagraph (ii) of section 2(c) of the ISDA Form will not apply to Transactions of the same type starting from the date of this Confirmation.
8.	Calculation Agent: The Calculation Agent is MBL - OBU. If at any time an Event of Default is continuing with respect to MBL - OBU, then ECDOBUHS or an independent third party selected by ECDOBUHS will act as Calculation Agent.
9.	Tax Representations:
	(a)	Payer Tax Representations: For the purpose of Section 3(e) of the ISDA Form, MBL - OBU and ECDOBUHS will make the following representation:
		It is not required by any applicable law, as modified by the practice of any relevant government revenue authority, of any Relevant Jurisdiction to make any deduction or withholding for or on account of any Tax from any payment (other than interest under Section 2(e), 6(d)(ii) or 6(e) of the ISDA Form) to be made by it to the other party under this Confirmation. In making this representation, it may rely on:
		(i)	the accuracy of any representation made by the other party pursuant to Section 3(f) of the ISDA Form;
		(ii)	the satisfaction of the agreement contained in Section 4(a)(i) or 4(a)(iii) of the ISDA Form and the accuracy and effectiveness of any document provided by the other party pursuant to Section 4(a)(i) or 4(a)(iii) of the ISDA Form; and

Macquarie Bank Limited
		(iii)	the satisfaction of the agreement of the other party contained in Section 4(d) of the ISDA Form,
		provided that it shall not be a breach of this representation where reliance is placed on clause (ii) and the other party does not deliver a form or document under Section 4(a)(iii) by reason of material prejudice to its legal or commercial position.
	(b)	Payee Tax Representations: For the purpose of Section 3(f) of the ISDA Form, MBL - OBU and ECDOBUHS make the representations specified below, if any:
		(A)	The following representation will apply except for Transactions in respect of which:
			(i)	the "Specified Jurisdiction" of MBL - OBU is the same as the "Specified Jurisdiction" of ECDOBUHS; or
			(ii)	there is no Specified Treaty;
			It is fully eligible for the benefits of the "Business Profits" or "Industrial and Commercial Profits" provision (or equivalent provision whether or not actually so named), as the case may be, the "Interest" provision or the "Other Income" provision (if any) of the Specified Treaty with respect to any payment described in such provisions and received or to be received by it in connection with this Confirmation and no such payment is attributable to a trade or business carried on by it through a permanent establishment in the Specified Jurisdiction.
		(B)	The following representation will apply to Transactions in respect of which the Specified Jurisdiction of MBL - OBU is same as the Specified Jurisdiction of ECDOBUHS:
			Each payment received or to be received by it in connection with this Confirmation will be effectively connected with its conduct of a trade or business in the Specified Jurisdiction carried on through a permanent establishment in the Specified Jurisdiction.
		For the purpose of this part of the Confirmation:
		Specified Jurisdiction of MBL - OBU means:
		(a)	the country in which is located the office identified in this Confirmation as the office through which ECDOBUHS is acting for the purpose of the Transaction;
		(b)	if no office is expressly identified in this Confirmation, the country in which is located the office from which this Confirmation originated.
		Specified Jurisdiction of ECDOBUHS means:
		(a)	the country in which is located the office identified in this Confirmation as the office through which MBL - OBU is acting for the purpose of the Transaction;
		(b)	if no office is expressly identified in this Confirmation, the country in which is located the office from which this Confirmation originated.
		Specified Treaty means the income tax convention, if any, between the Specified Jurisdiction of MBL - OBU and the Specified Jurisdiction of ECDOBUHS.
10.	A new Section 6(f) is added to the ISDA Form as follows:

Macquarie Bank Limited
	"Set-Off. Any amount (the "Early Termination Amount") payable to one party (the Payee) by the other party (the Payer), in circumstances where there is a Defaulting Party or where there is one Affected Party in the case where either a Credit Event upon Merger has occurred or any other Termination Event in respect of which all outstanding Transactions are Affected Transactions has occurred, will, at the option of the Non-defaulting Party or Non-affected Party ("X") (and without prior notice to the Defaulting Party or the Affected Party), be reduced by its set-off against any other amounts ("Other Amounts") payable by the Payee to the Payer (whether or not arising under this Agreement, whether or not matured, whether or not contingent, and irrespective of the currency, place of payment or booking office of the obligation). To the extent that any Other Amounts are so set off, those Other Amounts will be discharged promptly and in all respects. X will give notice to the othe r party of any set-off effected under this Section 6(f).
	For this purpose, either the Early Termination Amount or the Other Amounts (or the relevant portion of such amounts) may be converted by X into the currency in which the other is denominated at the rate of exchange at which such party would be able, acting in a reasonable manner and in good faith, to purchase the relevant amount of such currency.
	If an obligation is unascertained, X may in good faith estimate that obligation and set off in respect of the estimate, subject to the relevant party accounting to the other when the obligation is ascertained.
	Nothing in this Section 6(f) will be effective to create a charge or other security interest. This Section 6(f) will be without prejudice and in addition to any right of set-off, offset, combination of accounts, lien, right of retention or withholding or similar right or requirement to which any party is at any time otherwise entitled or subject (whether by operation of law, contract or otherwise).
MBL - OBU and ECDOBUHS each acknowledge that the Transaction referred to above forms one agreement and that the terms of this Transaction have been agreed to in recognition of the terms of any other transaction between the parties.
Please confirm that the foregoing correctly sets forth the terms of our agreement with respect to this Transaction (Deal Reference: HH_0509768-9) by signing this Confirmation in the space provided below and immediately returning a copy of the executed confirmation via facsimile to Macquarie Bank Limited - OBU to the attention of: Treasury and Commodity Settlements - Energy, fax no. (61 2) 8232 8354.
/s/David Morrison		/s/P. Mark Stark
Name:		Name:
Authorised Signatory		Authorised Signatory
For and on behalf of Macquarie Bank Limited - OBU		For and on behalf of THE EXPLORATION COMPANY OF DELAWARE INC.
NOTE: Certain terms and conditions have been omitted from this document at the request of Macquarie Bank.

EX-10

Exhibit 10.2
Letter of Credit Agreement
This Letter of Credit Agreement ("Agreement") is entered this 7th day of October 2004 by and between Guaranty Bank ("Guaranty") and The Exploration Company of Delaware, Inc. ("Customer") in light of the following recitals.
R E C I T A L S:
The Customer has requested Guaranty to issue or cause to be issued Standby Letters of Credit ("Letters of Credit") representing Hedge Commodity Agreements or Rate Management Transactions, (which are being issued outside the original borrowing base as stated in the Credit Agreement dated June 30, 2004), containing the terms and provisions set forth on Exhibit "A", (Letter of Credit Application(s)), hereto attached and made a part hereof. The Beneficiaries named in the Letters of Credit are called "Beneficiary" in this Agreement. The purpose of this Agreement is to evidence the agreement between Guaranty and the Customer regarding the Letters of Credit and the rights and obligations of the parties arising out of transactions involving the Letters of Credit. The consideration for Customer's agreement to the terms of this Agreement is the agreement of Guaranty to issue Standby Letters of Credit representing Hedge Commodity Agreements or Rate Management Transactions.
THEREFORE, Guaranty and Customer agree as follows:
1.            Letter of Credit Fee. The Customer agrees to pay Guaranty an administrative fee as defined in the "Pricing Schedule" Exhibit VI of the Credit Agreement dated June 30, 2004, per annum of the Letters of Credit amounts with a minimum payment of $500.00, which is charged by Guaranty in connection with the issuance or renewal of the Letters of Credit, regardless of whether there is a payment on any drafts presented pursuant to the Letters of Credit.
2.            Agreement to Pay. Customer agrees to pay Guaranty on demand at its main banking quarters in Dallas, Texas in currency of the United States (a) all of Guaranty's expenses ("Guaranty Expenses") incurred in connection with any Letters of Credit Activities (as hereinafter defined), including, but not limited to, attorney's fees, recording fees, cost of credit reports and expenses relating to title insurance and UCC report forms, (b) all amounts paid by Guaranty ("Letter of Credit Payments") pursuant to drafts or other demands made pursuant to the Letters of Credit, (c) interest on the unpaid sums owing pursuant to subparagraphs (a) and (b) of this paragraph calculated at the rate as defined in the "Pricing Schedule" Exhibit VI of the Credit Agreement dated June 30, 2004, and in accordance with the further provisions of this paragraph. Intere st shall accrue from the date monies are paid by Guaranty or expenses incurred (as appropriate) until paid by Customer. "Letters of Credit Activities" shall include all actions taken in response to the application of the Customer for the issuance of the Letters of Credit, the issuance and documentation of the transaction by which the Letters of Credit are issued and all actions taken in response to and as a result of the presentation of a draft or other demand for payment pursuant to the Letters of Credit.
3.            Authority to Pay. Guaranty is irrevocably authorized to pay any sum requested in accordance with the Letters of Credit provided: (a) the amount paid and the amounts previously paid pursuant thereto do not exceed the stated amount(s) of the Letters of Credit; and (b) all documents ("Presentation Documents") required to be presented pursuant to the Letters of Credit are presented. Guaranty may act upon Presentation Documents which it determines in its sole discretion are authentic and in accordance with the requirements of the Letters of Credit and pay sums in accordance with the Letters of Credit, notwithstanding any act or failure to act of the Beneficiary or Customer, including, but not limited to, (i) Customer's oral or written objection to the Presentation Documents or the accuracy of any statements therein made or (ii) Customer's or al or written challenge to the right of the Beneficiary to request sums pursuant to the Letters of Credit on whatever basis, including, but not limited to, Customer's claims of fraud, forgery, other defect, default by the Beneficiary or misrepresentation. Guaranty shall not be required to determine: (i) that any signatures on the Presentation Documents are the signatures of the parties which they purport to be or (ii) that any statements therein made are accurate. Guaranty shall be conclusively deemed to be acting in good faith in the payment of any sum pursuant to the Letters of Credit or the taking of any other action in connection therewith if it complies with the provisions of this paragraph 3.
4.            Reliance. Guaranty may act in reliance upon any oral, telephonic, telegraphic, electronic or written request, which it believes, in good faith, to have been authorized by the Customer, whether or not given or signed by an authorized person.
5.            Release. Guaranty shall not be responsible for and the Customer releases Guaranty from any claim arising out of (a) any loss, cost or expenses incurred by Customer as a result of any of the Letters of Credit Activities unless it is determined by a court of competent jurisdiction that Guaranty has failed to perform its obligations pursuant to this Agreement, (b) any default, negligence, misfeasance, suspension, insolvency or bankruptcy of any correspondent or agent of Guaranty, (c) any loss or delay, in transmission or otherwise, of any drafts, documents or instruments or the proceeds therefrom or (d) any delay, interruption, omission or error in transmission or delivery of any message.
6.            Indemnity. Customer indemnifies and holds Guaranty and all of its employees, officers, directors, attorneys and agents (Guaranty and said persons hereinafter called "Indemnified Parties") from any and all claims and causes of action asserted against or incurred by the Indemnified Parties arising out of a Default Event (defined below) or any of the Letters of Credit Activities, INCLUDING THOSE BASED UPON THE NEGLIGENCE OF ANY OF THE INDEMNIFIED PARTIES.
7.            Representations. Customer represents and warrants to Guaranty the following: (a) the execution and delivery of this Agreement and all agreements ("Related Agreements") executed in connection herewith have been duly authorized by all appropriate parties and this Agreement and the Related Agreements are binding on and enforceable against the Customer; (b) all consents and approvals required for the execution and delivery of this Agreement and the Related Agreements by the Customer have been obtained; (c) neither the execution of this Agreement and the Related Agreements nor the consummation of the transactions contemplated thereby will (i)  result in a breach
2
of, a default under or acceleration of any agreement to which the Customer is a party or by which it is bound or (ii) violate any law, rule, regulation, restriction, court order or agreement to which it is subject; (d) all of the financial and other information ("Financial Information") delivered by the Customer in connection with its application for the Letters of Credit and all statements (both written and oral) made by the Customer to Guaranty were and are true, correct and accurate in all respects at the time delivered or made and on the date hereof; (c) Customer is not directly or indirectly engaged in commercial trade with any foreign country targeted by the Office of Foreign Assets Control ("OFAC"), or with any party named in OFAC's Specially Designated Nationals and Block Persons ("SDN") list; and (d) Customer has taken reasonable measures to ensure that Beneficiary is not directly or indirectly engaged in commercial trade with any foreign targeted by the OFAC; or with any party named in OFAC's SDN list.
8.            Default Events. (a) The occurrence of any of the following shall constitute a "Default Event":
(i)            The failure of Customer to perform its obligations pursuant to this Agreement or any Related Agreement;
(ii)            The failure of any other party directly or indirectly liable for performance of Customer's obligations hereunder (including any party's guarantee of those obligations) (all such parties hereinafter called "Guarantor") to perform its obligations pursuant to this Agreement or any Related Agreement;
(iii)            Customer or Guarantor shall (A) be adjudicated as bankrupt or insolvent, (B) make a general assignment for the benefit of creditors, (C) file a petition, answer or consent seeking or allowing to be entered against him or it, an order for relief (or any similar remedy) under any provision under the United States Bankruptcy Code ("Bankruptcy Code") or consent to the institution of any proceedings thereunder, (D) convene a meeting of creditors, or any class thereof, for the purpose of effecting a moratorium upon or extension or reorganization of debts or (E) apply for or consent to the appointment of a receiver, trustee, custodian, liquidator or other similar official of all or any portion of its assets;
(iv)            A petition is filed, or any case or proceeding is commenced, under the Bankruptcy Code against either the Customer or any Guarantor unless such petition in the case or proceeding initiated thereby is dismissed within 60 days following the date of filing, an answer is filed by Customer or any Guarantor admitting the allegations of any such petition, or a court of competent jurisdiction enters an order, judgment or decree without the consent of the Customer or any Guarantor appointing a custodian, trustee, agent or receiver of either, or for all or any part of either's property, or authorizing the taking of possession by a custodian, trustee, agent or receiver of all or any part of either's property, unless such appointment is vacated or dismissed or such possession is termin ated within 60 days from the earlier of the date of such appointment or commencement of such possession, but not later than 5 days before the proposed sale of any assets by such custodian, trustee, agent or receiver;
3
(v)            Guaranty determines that any of the Financial Information delivered to it by the Customer or any Guarantor was inaccurate in any material way, either at the time of the delivery of the Financial Information or on the date of this Agreement or that any of the representations or warranties made by the Customer or any Guarantor in this Agreement or any of the Related Agreements is materially inaccurate; and
(b)            Upon the occurrence of any Default Event, Guaranty may, at its option, take any or all of the following actions:
(i)            Make demand for payment of all sums owing pursuant to the terms of this Agreement;
(ii)            Exercise all rights pursuant to any of the Related Agreements, including, but not limited to, the exercise of rights in and to property encumbered by liens or security interests securing the obligations of the Customer or any of the Guarantors;
(iii)            Deliver a demand to the Customer and any Guarantor that there be deposited with Guaranty good funds ("Special Deposit") in an amount designated by Guaranty but not exceeding 120% of the amount of the Letter of Credit; and
(iv)            Offset and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and any other indebtedness at any time owing by Guaranty to the Customer against any and all sums owing pursuant to this Agreement, regardless of whether any demand has been made under this Agreement for any such sums or whether any such deposits or other indebtedness owed by Guaranty are matured or contingent.
9.            Special Deposit. If Guaranty exercises its right to request the Special Deposit, (a) the Customer shall deliver the amount requested to Guaranty within 5 business days following said request, (b) the Special Deposit shall secure all of the obligations of Customer pursuant to this Agreement and the Related Agreements, (c) Guaranty shall be entitled to hold the Special Deposit until all of Customer's obligations are fully performed and, at its option, apply the Special Deposit to the payment of those obligations as they arise and (d) Customer shall not withdraw, pledge or otherwise encumber the Special Deposit.
10.            Additional Financial Information. Customer shall deliver to Guaranty such additional financial and other information, which Guaranty may request from time to time.
11.            Security. The obligations of the Customer hereunder are secured and guaranteed by all of the liens, security interests and agreements (now or hereafter given) securing and granting collateral for the loan, ("Loan Facility"), between Guaranty Bank and The Exploration Company as evidenced by the Security Agreement dated June 30, 2004 between said parties. A guaranty(ies) added from time to time under the "Loan Facility" will also guarantee the obligations of the customer herein.
4
12.            No Usury. All agreements between Customer and Guaranty, whether now existing or hereafter arising and whether written or oral, are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration or the making of a demand for the payment of any sum hereunder, or otherwise, shall the amount paid, agreed to be paid to Guaranty for the use, forbearance or detention of money or for the payment or performance of any covenant or obligation contained in this Agreement or any of the Related Agreements, exceed the maximum amount permissible under applicable law. If from any circumstance whatsoever, fulfillment of any provision hereof or of any Related Agreement, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by applicable law, then, ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity, and if from any circumstance, Guaranty shall ever receive as interest or otherwise any amount which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of sums owing hereunder other than interest and not to the payment of interest or if such excess of interest exceeds the unpaid balance of said sum (exclusive of interest), such excess shall be refunded to the Customer. All sums paid or agreed to be paid to Guaranty for the use, forbearance or detention of indebtedness shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of the indebtedness until payment in full so that the actual rate of interest on account of such indebtedness is uniform throughout the term. This paragraph shall control and supersede every other provision of all agreements between Guaranty and Customer.
13.            Entire Agreement. This Agreement and the Related Agreements embody the entire agreement between Guaranty and the Customer with respect to the Letter of Credit and Letter of Credit Activities, and there are no oral or parol agreements existing between Guaranty and the Customer with respect to the Letter of Credit or the Letter of Credit Activities which are not expressly set forth herein and in the Related Agreements.
14.            Headings.            The headings in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation hereof.
15.            Interpretation. Whenever the context hereof shall so require, the singular shall include the plural, the male gender shall include the female gender and the neuter, and vice versa.
16.            Notice. Any notice required or permitted to be delivered hereunder shall be deemed delivered when deposited in the United States mail, postage prepaid, certified mail, return receipt requested, addressed to Guaranty or the Customer, as the case may be, at the address set forth below the signature of such party.
17.            Applicable Law. This Agreement shall be construed in accordance with the laws of the State of Texas and the United States, to the extent applicable.
18.            Severability. In case any one or more of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.
5
Continuing Agreement/Cumulative Rights. This Agreement is a continuing obligation of the Customer and shall remain in full force and effect until all of the obligations of the Customer hereunder and pursuant to the Related Agreements have been fully satisfied. All rights and remedies of Guaranty hereunder shall be cumulative of all other remedies to which it may be entitled under applicable law. This Agreement shall be binding upon and inure to the benefit of Guaranty, Customer and their respective successors and assigns only. Neither this Agreement nor any of the Related Agreements shall create any rights in favor of any party other than the persons and entities described in the preceding sentence. Without limiting the scope of the preceding sentence, the parties agree that Beneficiary shall not be entitled to any rights or remedies created in this Agreement.
USA Patriot Act Notice. Pursuant to federal law, Lender is required to give Borrower this important information about procedures for opening a new account. To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions and subsidiaries to obtain, verify, and record information that identifies each person or entity who opens an account. This means that when Borrower opens a loan or letter of credit account with Lender, Borrower must provide to Lender information requested, such as name, address, tax identification number, and other corporate information, including business organizational documents, such as Articles of Incorporation, or other identifying documents.
THIS AGREEMENT AND THE RELATED AGREEMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
LENDER:	CUSTOMER:
GUARANTY BANK	THE EXPLORATION COMPANY OF DELAWARE, INC.
By:   /s/ Jonathan Gregory	By:   /s/ P. Mark Stark
Name: Jonathan Gregory	Name: P. Mark Stark
Title: Senior Vice President	Title: Vice President, Treasurer and CFO
Address:	Address:
8333 Douglas Avenue	500 N. Loop 1604 East, Suite 250
Dallas, Texas 75225	San Antonio, Texas 78232
6

EX-31

Exhibit 31.1
Certification
I, James E. Sigmon, certify that:
1.	I have reviewed this Quarterly Report on Form 10-Q of The Exploration Company of Delaware, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date:	November 9, 2004
	/s/ James E. Sigmon
	James E. Sigmon President and Chief Executive Officer

EX-31

Exhibit 31.2
Certification
I, P. Mark Stark, certify that:
1.	I have reviewed this Quarterly Report on Form 10-Q of The Exploration Company of Delaware, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date:	November 9, 2004
	/s/ P. Mark Stark
	P. Mark Stark Vice President and Chief Financial Officer

EX-32

Exhibit 32.1
Certification
In connection with the Quarterly Report of The Exploration Company of Delaware, Inc. (the "Company") on Form 10-Q for the period ended September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James E. Sigmon, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.     The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.     The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
	/s/  James E. Sigmon
	Name:  James E. Sigmon
	Title:    Chief Executive Officer
	Date:    November 9, 2004
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of the Report or as a separate disclosure document.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32

Exhibit 32.2
Certification
In connection with the Quarterly Report of The Exploration Company of Delaware, Inc. (the "Company") on Form 10-Q for the period ended September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, P. Mark Stark, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.     The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.      The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
	/s/ P. Mark Stark
	Name: P. Mark Stark
	Title:  Chief Financial Officer
	Date:   November 9, 2004
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of the Report or as a separate disclosure document.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.