Contango Announces Additional Reserve Acquisition in South Texas.

Business/Energy Editors

Contango Oil & Gas Company (AMEX:MCF) announced it has completed the fourth increase in its ownership interest in its core South Texas Exploration Program ("STEP") property. The $2.6 million acquisition, effective July 1, 2002, purchased an estimated 1.1 Bcfe of proved developed producing reserves for approximately $2.27 per Mcfe, or $2.03 per Mmbtue. The acquisition was funded under the Company's $20.6 million secured oil and gas revolving credit facility provided by Guaranty Bank, FSB and raises the Company's outstanding indebtedness to approximately $18.9 million.

Kenneth R. Peak, chairman and chief executive officer, said, "Since the first of the year, we have completed four acquisitions at our core STEP properties totaling $25.9 million, increasing our working and net revenue interests to 71% and 53%, respectively. The all in economics of these acquisitions are 14 Bcfe of proved developed producing reserves acquired at a cost of $1.85 per Mcfe, or $1.65 per Mmbtue. The Company believes the cost figures per Mmbtue are more relevant since the Company sells its natural gas on a btu basis and the acquisitions were primarily rich natural gas reserves that contain approximately 1100 btu per cubic foot of natural gas."

Mr. Peak continued, "After the acquisition, the Company's proved developed producing reserves at July 1, 2002 were approximately 29 Bcfe or 32.6 trillion btue. Our current net daily production is approximately 20 Mmcf of natural gas per day and 500 barrels of oil per day. Throughout our fourth fiscal quarter, which ended June 30, 2002, we continued our active hedging program and recognized approximately $1.0 million in hedging gains, bringing our full 2002 fiscal year hedging gains to approximately $5.1 million."

Mr. Peak further commented, "At anticipated production levels and current prices, our monthly EBITDAX through December 2002 is anticipated to be approximately $1.5 to $2.0 million. Our REX subsidiary currently has a well drilling at Eugene Island 110 in the in the Gulf of Mexico, and we are continuing to review numerous onshore exploration opportunities. Our near term focus is to pay down debt, shoot additional 3-D seismic in south Texas and begin drilling onshore again in the near future."

Contango is an independent natural gas and oil company that explores for, develops, produces and sells natural gas and crude oil. Contango's exploration and production efforts are currently focused onshore on the Gulf Coast and offshore in the Gulf of Mexico.

This press release contains forward-looking statements that involve risks and uncertainties, and actual events or results may differ materially from Contango's expectations. The statements reflect Contango's current views with respect to future events that involve risks and uncertainties, including those related to successful negotiations with other parties, oil and gas exploration risks, price volatility, production levels, closing of transactions, capital availability, operational and other risks, uncertainties and factors described from time to time in Contango's publicly available reports filed with the Securities and Exchange Commission.