Contango Oil & Gas Company Announces Investment in Magnolia Offshore Exploration LLC and Updates Operations.

Business/Energy Editors

HOUSTON--(BUSINESS WIRE)--Jan. 31, 2002

Contango Oil & Gas Company (AMEX:MCF) announced today that its wholly owned subsidiary, MOE Offshore Corporation ("MOEX"), has purchased a 50% interest in Magnolia Offshore Exploration LLC for $5.0 million. Contango has already funded $1.0 million of this investment, with the remaining $4.0 million expected to fund in July 2002. Magnolia Offshore will explore in the Gulf of Mexico in water depths less than 350 feet utilizing approximately 600 blocks of 3D seismic data.

Kenneth R. Peak, Contango's president, stated, "Magnolia Offshore has been formed to evaluate, generate, acquire and explore prospects on the Gulf's shelf. With this new venture, together with our earlier investment in REX Offshore Corporation, Contango now has exposure to opportunities generated from approximately 2,000 blocks of 3D seismic data in state and federal waters in the Gulf of Mexico. Our REX and MOEX subsidiary investments have been structured such that our investment capital is used primarily to fund the acquisition of lease sale blocks. REX and MOEX's goals are to sell prospects on acquired lease sale blocks to the industry and earn a back-in working interest on any successful exploration wells. From time-to-time, depending on Contango's risk evalution, available capital, offshore rig day rates, and other factors, we may decide to acquire a direct working interest in a REX or MOEX generated exploration prospect."

Mr. Peak continued, "Contango currently has approximately $4.0 million of cash on hand, debt of $7.8 million and $9.2 million of available bank borrowing capacity. In addition, we continue to have approximately 50% of our 2002 and 2003 anticipated natural gas production hedged at prices of $2.63 and $2.73 per Mmbtu, respectively. Our current production levels are about 20 MMcfd and 500 Bopd, or approximately $1.2 - $1.4 million in monthly EBITDAX (earnings before interest, taxes, depreciation, depletion and amortization, and capital expenditures) at today's pricing of approximately $2.00 per Mmbtu and $20.00 per barrel and prior to any hedging gains or losses. Natural gas and crude oil prices at these levels will present significant challenges to Contango and the industry to grow and maintain profitability. In the quarter ended Dec. 31, 2001, we expect our average price of natural gas and oil to be $2.41 per Mcf and $17.53 per barrel, respectively, compared to $6.12 per Mcf and $30.56 per barrel for the year ago quarter."

Contango is a Houston-based, independent natural gas and oil company. The Company explores and acquires natural gas and oil properties primarily onshore in the Gulf Coast, offshore Gulf of Mexico and the Rocky Mountains. Additional information can be found on our Web page at www.contango-oandg.com.

This news release contains forward-looking statements within the meaning of the Securities Litigation Reform Act. The statements reflect the company's current views with respect to future events that involve risks and uncertainties including uncertainties 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 the company's publicly available SEC reports. In light of these risks and uncertainties, the forward-looking events described in this release might not occur.