Contango Reports Year-End Results

Contango Oil & Gas Company (AMEX:MCF) reported a net loss attributable to common stock for the year ended June 30, 2006 of $0.8 million, or $0.05 per basic and diluted share, compared to net income attributable to common stock for the year ended June 30, 2005 of $12 million, or $0.92 per basic and diluted share. EBITDAX for the year ended June 30, 2006 was $10.0 million compared to $28.5 million for the year ended June 30, 2005.

For the three months ended June 30, 2006, Contango had a net loss attributable to common stock of $1.2 million, or $0.08 per basic and diluted share, compared to a net loss attributable to common stock for the three months ended June 30, 2005 of $1.4 million, or $0.10 per basic and diluted share. Natural gas and oil sales from continuing and discontinued operations for the three months ended June 30, 2006 were $1.1 million, down from $1.3 million for the three months ended June 30, 2005.

Cash Inflow. During the year ended June 30, 2006, we had $49.9 million of cash inflow consisting of: internally generated after-tax net cash flow from operations of $9.5 million; net cash flow from financing activities of $20.5 million, which included borrowing $10.0 million of long-term debt, $9.6 million from the issuance of our Series D convertible preferred equity securities, net of issuance costs, and $1.9 million from the exercise of stock options and warrants, offset by $1.0 million paid in preferred stock dividends and debt issuance costs; $12.9 million in proceeds from the sale of proved reserves; and $7.0 million from the sale of short term investments.

Cash Outflow. During the year ended June 30, 2006, we invested a total of $45.8 million consisting of: $34.9 million in exploration and development activities ($24.7 million offshore and $10.2 million onshore). We drilled a total of three offshore wells, one of which was successful (drilling and completion costs of $8.6 million), and two of which were dry holes (drilling costs of $5.9 million). We also invested $1.0 million in the acquisition of additional offshore interests, $7.5 million to purchase additional ownership interests in REX and COE, $0.2 million in our 10% owned Freeport LNG project and $2.2 million in alternative energy companies.

Capital Budget. For fiscal year 2007, our capital expenditure budget calls for us to invest a total of $58.3 million, as we anticipate significantly increasing our capital commitment for developing our Arkansas Fayetteville Shale play, drilling our Eugene Island 10 ("Dutch") exploration well, and bringing our Grand Isle 72 ("Liberty") discovery to production.

Of the $58.3 million fiscal year 2007 capital expenditure budget, $13.0 million is anticipated to be invested in offshore activities. Our budget calls for us to invest approximately $2.2 million for production and pipeline facilities for developing Grand Isle 72, approximately $3.7 million for our share of the dry hole drilling costs for Eugene Island 10, our "Dutch" prospect, approximately $3.6 million for our share of the drilling and casing costs for Grand Isle 70, our "Red Queen" discovery and $3.5 million in projected future exploration costs, seismic and delay rentals. In the event we have exploration success at our Dutch prospect, our capital budget will be significantly increased as we will incur additional costs to complete the well and pay for production facilities in addition to follow-on development wells.

Of the $58.3 million fiscal year 2007 capital expenditure budget, $45.3 million is expected to be invested in onshore activities. In the Arkansas Fayetteville Shale, our partners and we have acquired or received commitments on approximately 44,000 net mineral acres and we have received Authorization for Expenditures ("AFEs") and committed to a total of 69 wells in this play as of August 31, 2006. Of these 69 wells, 15 are operated by Alta and 54 are operated by a third party independent oil and gas exploration company ("Integrated Wells"). We have an average working interest of 15.19%, and a net revenue interest of 12.04% in these 69 wells.

Of the 15 Alta wells, one well was drilled during fiscal year 2006. We are budgeting to receive an additional six AFEs from Alta for wells to be drilled during fiscal year 2007, and therefore expect to drill 20 Alta wells during fiscal year 2007 at a cost of $23.3 million. This includes drilling, frac, completion and hookup costs for the wells. Additionally, we expect to invest $3.2 million in infrastructure, seismic and additional leasehold costs for the Arkansas Fayetteville Shale. We estimate we will have an average working interest of 43%, and a net revenue interest of 34% in these 21 Alta wells.

Of the 54 Integrated Wells for which we have received an AFE, 16 wells are producing, 19 wells have already been spud, and 19 wells have yet to be drilled. In addition to these 54 Integrated Wells, we are budgeting to receive 57 additional AFEs for Integrated Wells during the remainder of fiscal year 2007 for a total of 111 Integrated Wells. We anticipate having between 40 to 50 producing Integrated Wells by December 2006. Our capital budget for Integrated Wells assumes we will invest $16.6 million in Integrated Wells during fiscal year 2007, assuming we drill the 76 wells currently budgeted. We estimate we will have an average working interest of 7.0%, and a net revenue interest of 6.0% in these 111 Integrated Wells.

Our capital budget also calls for us to invest $2.2 million with Alta in other onshore prospects in Texas, Louisiana, and Alabama.

Freeport LNG closed a $383.0 million private placement note issuance in December 2005, and we believe the LNG project will continue through Phase I construction and Phase II pre-development expansion with no further significant funds being required from Contango.

As of September 11, 2006, we have approximately $10.0 million in cash, cash equivalents, and short term investments. In addition, the Company has $10.0 million of unutilized borrowing capacity. The Company has estimated production during August 2006 of approximately 1.4 MMcfe/d.

We will need additional financing to fund our offshore exploration and Arkansas Fayetteville Shale development programs. We intend to access our additional funding needs by first seeking a hydrocarbon borrowing base bank loan. Depending on the terms, conditions and amount of traditional bank financing made available to us, we may be further required to pursue mezzanine debt, equity financing, the sale of assets or seek other financing to fund our opportunities. The availability of such funds will depend upon prevailing market conditions and other factors over which we have no control, as well as our financial condition and results of operations.

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