Contango Drills Dry Hole at Eugene Island 56, Returns 40 GOM Leases

Contango Oil & Gas announced that the Company's Eugene Island 56 #1 prospect was a dry hole. The Company will expense the approximate $12.0 million in drilling costs and $0.5 million in leasehold costs for this well in the quarter ended March 31, 2009. Our current net production is approximately 90.0 million cubic feet equivalent per day ("Mmcfed") with our Mary Rose #2 well shut-in for workover operations which are scheduled to begin in early May.

Guaranty Bank Credit Agreement

Guaranty Bank, the Company's lender under its $50.0 million revolving credit facility, has completed its borrowing base redetermination and confirmed that the Company's line of credit remains at $50.0 million. We remain debt-free and have approximately $31.0 million of cash on hand, invested in U.S. Treasury obligations.

Kenneth R. Peak, Contango's Chairman and Chief Executive Officer, said, "In addition to expensing the $12.5 million of associated dry hole costs at Eugene Island 56, we also returned 40 Gulf of Mexico leases this quarter to the MMS with a book value of approximately $3.7 million. About half of these leases were about to expire and about half are being relinquished early. Further, we impaired our Grand Isle 70 well for approximately $2.7 million as required under successful efforts accounting. We have not yet completed our financials, but are projecting a break-even quarter after the above mentioned expenses."

Mr. Peak continued, "The dry hole expense and surrender of leases to the MMS will reduce the amount of income taxes we have to pay this fiscal year. Further, we have no significant capital expenditures planned until November 2009 when we plan to spud our Ship Shoal 263 prospect ("Nautilus"). Our plan is to continue to build our cash reserves and use our liquidity to repurchase our shares in the open market at opportune times. Since the implementation of our share repurchase program in September 2008 we have repurchased approximately 1.2 million shares for $51.8 million. Our fully diluted shares now stand at 16.5 million, or an approximate 7% reduction since September 2008."

Mr. Peak continued, "I became Chairman and CEO of Contango on July 29, 1999. In the intervening 10 years we have raised a total of $60.5 million of equity at various times. We have also from time to time purchased our common stock, both in private transactions, and more recently in the public markets. We have now expended a total of $64.7 million to purchase 3,945,187 shares over this same ten year time frame. I believe Contango is one of just a few public companies with a "negative" net equity invested."