Contango Announces Investment in On-Shore Assets

Contango Oil & Gas Company

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 (

) 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.