Contango Promotes Lesia Bautina to Vice President and Updates Operations.

Business/Energy Editors

HOUSTON--(BUSINESS WIRE)--Aug. 5, 2002

Contango Oil & Gas Company (AMEX:MCF) announced today that Lesia Bautina has been promoted to Vice President and Controller. Ms. Bautina joined the Company in November 2001 as Controller. She is a Certified Public Accountant and member of the Petroleum Accounting Society of Houston. Ms. Bautina has a BBA in Accounting from Sam Houston State University, where she graduated with honors.

Contango also announced that Guaranty Bank, FSB had increased the Company's hydrocarbon borrowing base under its secured revolving line of credit to $24.0 million effective July 26, 2002. The borrowing base reduces by $580,000 on the first of each month.

In addition, the Company announced that it would expense the cost of all stock options the Company grants, beginning with stock options granted during the fiscal year ended June 30, 2002. The Company will adopt the fair value based method of recording stock options contained in SFAS No. 123, "Accounting for Stock-Based Compensation."

All employee stock options grants will be expensed over each stock option's vesting period based on the fair value at the date the options are granted. The fair value of each option is estimated as of the date of grant using the Black-Scholes options-pricing model. The Company expects to record an expense of approximately $30,000 for the 2002 fiscal year from the adoption of this accounting standard.

Kenneth R. Peak, Chairman and Chief Executive Officer, stated, "When we started the Company, we adopted the successful efforts method of accounting for oil and gas exploration activities and mark-to-market accounting for valuing our outstanding derivative contracts. Under the successful efforts method, dry holes, seismic and related geological and geophysical costs are charged to expense when incurred. Under the mark-to-market accounting method, changes in the value of our natural gas and crude oil derivative contracts are reported in our quarterly earnings as their mark-to-market values fluctuate. I believe, these two accounting methods more closely reflect the true economic and cash realities of our business and thus are preferable to alternative accounting methods."

Mr. Peak continued, "Our net production is now averaging around 18 MMcfd and 400 barrels of oil per day, and we continue to anticipate monthly cash flow of between $1.5 and $2.0 million through calendar year end 2002. Our debt stands at $17.2 million, and we currently have available borrowing capacity of approximately $6.2 million.

"Our REX subsidiary has successfully logged an offshore discovery on our Eugene Island 110 block, for a total of three successful wells and two dry holes in its exploration efforts since inception. The net proved reserves to Contango from these three wells are estimated to be approximately 1.5 Bcfe. REX anticipates a second exploration well on our Eugene Island 110 block will begin drilling within the next couple of months. Contango and REX have been carried in these exploration wells, and we do not expect to earn our back in working interests or to receive any cash flow until after payout, which is projected to occur sometime in the 2004 time frame."

Mr. Peak continued, "We have been hedging various portions of our anticipated production almost continuously over the last two years and currently have 9,000 MMbtud hedged from September 2002 through January 2003 at an average price of $3.22 per MMbtu. In our fiscal year that ended June 30, 2002, we had $5.0 million in hedging gains of which approximately $800,000 was realized in our fiscal fourth quarter that ended June 30, 2002."

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.