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Contango Announces Investment In On-Shore Assets

Contango Oil & Gas Company (NYSE Amex: MCF) announced today that as of March 31, 2012, the Company, through its wholly-owned subsidiary, Contaro Company, entered into a Limited Liability Company Agreement (the “LLC Agreement”) to form Exaro Energy III LLC (“Exaro”). Other major members of Exaro include Sageview Capital LP and Exaro II Jonah, a wholly owned subsidiary of Exaro Energy II LLC and an affiliate of Jefferies Capital Partners. Pursuant to the LLC Agreement, the Company has committed to invest up to $82.5 million in Exaro over the next five years together with other parties for an aggregate commitment of $182.5 million. The Company owns approximately a 45% interest in Exaro, subject to terms allowing another party to acquire up to $15 million of the Company’s commitment, which would decrease the Company’s interest in Exaro to approximately 34%. The Company anticipates funding approximately $41.3 million in April 2012.

Exaro has entered into an Earning and Development Agreement (the “EDA Agreement”) with Encana Oil & Gas (USA) Inc. (“Encana”) to provide funding of up to $380 million to continue the development drilling program in a defined area of Encana’s Jonah field asset located in Sublette County, Wyoming. This funding will be comprised of the $182.5 million investment detailed above, debt, and cash flow from operations. Encana will continue to be the operator of the field and upon investing the $380 million, Exaro will have earned 32.5% of Encana’s working interest in a defined joint venture area that comprises approximately 5,760 gross acres.

The Jonah field is the third largest oil producing field in Wyoming and one of the largest single gas fields in the United States with an average gross pay section of approximately 3,500 feet (1,000 feet of net pay).

Kenneth R. Peak, Contango’s Chairman and Chief Executive Officer, said, “We are pleased to be partners with our investment group and Encana in one of the premier gas fields in North America. The hydrocarbons produced from the Jonah field consist of high BTU gas (1,150 BTU/mcf) and 50 API grade condensate. The condensate yield ranges from 10 bbls/mmcfg in the upper Lance to 45 bbls/mmcfg in the lower Lance formation. Under the terms of our EDA Agreement, virtually all of our capital is directed towards “turning a drill bit to the right” which is an extremely tax efficient way for Contango to invest. Further, we believe that the partnership between Encana and Exaro will benefit from the utilization of the very latest in shale gas completion technology as it is applied in these tight sandstones, that, together with an emphasis on liquids production, will drive significant value accretion for both companies.”

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