Costilla's Migl-Mitchell #5 Shows Test Potential of 93.5 MMCFD; Company's Seventh Speaks Well Catapults Field Production to 40 MMCFD; New Gas Hedges to Cover 94 Percent of Production at $2.20 Per MCF

Costilla's Migl-Mitchell #5 Shows Test Potential of 93.5 MMCFD; Company's Seventh Speaks Well Catapults Field Production to 40 MMCFD; New Gas Hedges to Cover 94 Percent of Production at $2.20 Per MCF

MIDLAND, Texas, Jan. 20 /PRNewswire/ -- Costilla Energy, Inc. (Nasdaq: COSE) reported today that its Migl-Mitchell #5 well tested with a calculated absolute open flow (AOF) rate of approximately 93.5 million cubic feet of natural gas per day (MMCFD). Initial production from the new well is approximately 3.2 MMCFD from a depth of 14,600 feet, with 7,485 pounds of flowing tubing pressure on a 9/64-inch choke. The new well's performance brings field production in Costilla's Southwest Speaks project to approximately 40 MMCFD. Costilla is prepared to increase Speaks field production with additions to pipeline capacity currently underway. The Migl-Mitchell #5 is an offset to the Migl-Mitchell #1, the company's biggest discovery, and its seventh successful well on the Southwest Speaks project in Lavaca County, Texas. Costilla owns a 100 percent working interest, 72 percent net revenue interest in the Migl-Mitchell #5. Eight additional locations have been identified on the company's 20,000-acre leasehold in Southwest Speaks. The Speaks property was part of Costilla's 1995 acquisition from a predecessor of Pioneer Natural Resources USA, Inc. Costilla also announced that it has executed new fixed price swap contracts that hedge the company's natural gas at $2.20 per MCF for 45 MMCFD, or about 94 percent of current daily gas production. The contracts are effective February 1, 1999 through December 31, 2000, and replace the company's previously announced gas hedge contracts. "Our hedging program will continue to be a fundamental part of our operating strategy," said Mike Grella, president and CEO of Costilla. "With commodity prices expected to be static for the medium term, we believe these new contracts are especially attractive." The company recently announced that the Garland Walker #1 tested with an absolute open flow rate of 25 MMCFD. Lundberg Operating Company, Inc. and Robert M. Rice Investments, Ltd. of Corpus Christi, Texas, and Ken Petroleum Corporation and Victoria Gas Corporation of Dallas, together share a two percent overriding royalty interest until Costilla recovers its costs for acquiring the prospect and drilling and completing the well. After payout, the holders of the overriding interest will receive a 25 percent working interest in the Garland Walker #1, and the right to participate in subsequent wells on the Walker lease as 25 percent working interest owners. Costilla Energy, Inc. is an independent energy company actively engaged in the exploration, acquisition and development of oil and gas properties, with operations primarily in the Permian Basin of Texas and New Mexico, South and East Texas, and the Rocky Mountain regions. Headquartered in Midland, Texas, the Company and its predecessors have been in business since 1988. The Company's common stock is traded on the Nasdaq National Market under the symbol COSE. Additional information about Costilla is available on the Internet at http://www.costillaenergy.com. Certain statements in this news release constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of Costilla Energy, Inc. to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: the volatility of oil and gas prices; the Company's ability to replace its oil and gas reserves; the availability of capital resources; the reliance upon estimates of proved reserves; operating hazards and uninsured risks; competition; government regulation; and the ability of the Company to implement its business strategy. Additional information is available in the Company's filings with the Securities and Exchange Commission, which are incorporated by this reference as though fully set forth herein.