Contango Oil & Gas Enters GOM Exploration Agreement

Contango Oil & Gas Company announced that its wholly owned subsidiary, Contango Operators Inc., and its 33.3% owned affiliate, Republic Exploration LLC, have entered into an agreement with a private company covering three offshore Gulf of Mexico blocks with an option on a fourth block. The blocks, acquired in March 2001 at OCS Sale 178 covering the Central Gulf of Mexico, include Eugene Island 110 and 113B and Grand Isle 24 and 28. Under the agreement, Contango and Republic Exploration will carry out exploration and development activities and will receive a reversionary interest at payout of each block. Drilling will commence prior to year end.

Kenneth R. Peak, chairman and chief executive officer, stated, "We are not only pleased to have successfully consummated this agreement within a month of having been awarded the last of our lease sale blocks but are also gratified to know that exploratory drilling will start within less than a year of the lease sale."

Mr. Peak further stated, "We also expect drilling to commence next month on Republic Exploration's High Island Tract 25L located in Texas state waters. As to our onshore activities, drilling is continuing on our south Texas exploration play. We currently have one rig operating and, with continued success, would expect drilling to continue through year end 2001. Given the current price environment for natural gas, our cash flow for the remaining months of calendar year 2001 continues to be projected at approximately $1.5 million per month."