- Significant Discovery in South Texas
    - Continued Drilling Success on Wilson Ranch Project
    - South Texas Acquisition To Add Significant Drilling Opportunities
    - Divestitures To Lower Average Operating Expense

    MIDLAND, Texas, Jan. 6 /PRNewswire/ -- Costilla Energy, Inc.
(Nasdaq: COSE) announced today that it has successfully drilled its first
exploratory well in the Southwest Speaks field of Lavaca County, Texas.
Drilled to a depth of 14,950 feet, on the Company-owned 46 square mile 3-D
survey, the Migl-Mitchell #1 penetrated two sand pays totaling 190 feet of
productive expanded Wilcox sands.
    "Our preliminary estimates indicate this well, in which the Company has
a 100 percent working interest, will add 25 to 40 billion cubic feet of
gas to Costilla's reserves," said Mike Grella, president and chief
executive officer.  "The ultimate reserve potential should be
substantial, and we believe this single well will add significantly to
1998's production.  This discovery is clear evidence of Costilla's geo-
seismic expertise and technical capabilities."
    Costilla owns a leasehold interest in 7,865 acres, on which five
additional locations have been identified for drilling on the prospect.
Drilling of the Migl-Mitchell #2 well will commence immediately.  Current
plans include a third well to be drilled in 1998.
    Costilla recently completed its second well on the Wilson Ranch project
located in Pecos County, Texas.  The Company estimates reserves to be 1.5
to 2 billion cubic feet of gas per well.  Costilla is currently drilling
its third well on the prospect.  The Company has identified 30 additional
drilling locations on its initial 17-square mile 3-D seismic survey of
the Wilson Ranch, and is planning to shoot an additional survey covering
50 square miles during 1998.  Costilla controls substantial leasehold
acreage on the Wilson Ranch property.
    Costilla also announced that it has agreed to acquire from Manti
Resources, Inc., producing properties, 3-D data, and significant acreage
located in the Scott & Hopper and Pita Fields of Brooks County, Texas.
Costilla will add proved reserves preliminarily estimated at
approximately 1.5 million barrels of oil equivalent, a leasehold
position in approximately 12,000 acres, in which Costilla will have a 100
percent working interest, and 30 square miles of 3-D seismic data covering the
entire prospect area. The transaction is scheduled for closing in January.
    "We are very pleased with this transaction, and feel it is extremely
synergistic to Costilla's interests in South Texas," said Grella.  "This
acquisition greatly increases our previously identified drilling
opportunities in the Brooks County area.  We have plans to initiate our
drilling program there during the first quarter of 1998."
    On December 31, 1997, Costilla sold miscellaneous oil and gas properties
to Concho Resources Inc., a privately held company headquartered in
Midland, Texas, for approximately $17.0 million.  These properties are
generally non-operated interests in the Permian Basin of West Texas, and
did not fit the Company's overall business strategy.  The divestitures
also will result in lower overall operating expenses.
    Regarding the sales, Grella said, "Costilla is focused on finding oil
and gas and efficiently maximizing production to the advantage of our
shareholders.  This strategy is best served by concentrating our energies
and resources on properties with the greatest upside potential."

    Non-Operated Success
    Enron Oil & Gas Company (NYSE: EOG) recently completed the Sand Tank 36,
an Eddy County, New Mexico, discovery well in which Costilla has a 20
percent net revenue interest.  This well was completed in the lower
Morrow zone, and is currently producing at a daily rate of approximately
500 BOEPD, net to Costilla.
    "Our successful drilling efforts and the acquisition of additional South
Texas properties will result in an increase to production rates in the
first quarter," Grella said.  "Further, our Company hedges have served us
well in managing our risk of volatile pricing."
    Currently, Costilla has approximately 95 percent of its oil production
hedged with a floor of $18.50 per barrel.
    Costilla Energy Inc. is an independent energy company engaged in the
exploration, acquisition and development of oil and gas properties, with
operations primarily in the Permian Basin, South & East Texas, and the
Rocky Mountain regions.  The Company and its predecessors have been in
business since 1988.
    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.
These factors are discussed in more detail in the Company's prospectus for its
initial public offering of common stock.
    For additional information about Costilla Energy, Inc.,  free of charge
via fax, dial 1-800-PRO-INFO and use ticker symbol "COSE."

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