* Production Up 50 Percent
           * Revenues Double
           * Cash flow Increases To $7.9 million
           * Proved Reserves Up 56 Percent To 37 Million BOE
           * Strong Production Gains In Early 1997

    MIDLAND, Texas, March 12 /PRNewswire/ -- Costilla Energy Inc.
(Nasdaq: COSE), buoyed by a 50 percent increase in oil and natural gas
production and more than double the revenues of a year ago, today reported
fourth-quarter income of $0.9 million, or 8 cents per share, before a
nonrecurring gain and extraordinary items.  That compares with a loss of
$1.3 million reported for the fourth quarter a year earlier.  For the
fourth quarter ended December 31, 1996, Costilla reported a net loss of
$1.6 million, including extraordinary items consisting of an
extraordinary charge of $4.4 million related to early payoff of debt and
a deferred tax benefit of $1.0 million and a nonrecurring $0.9 million
gain from the sale of assets.
    For the fourth quarter 1996, cash flow, excluding a nonrecurring gain
and extraordinary items, was $7.9 million, or 77 cents per share, and Adjusted
EBITDA was $10.8 million, or 3.9 times interest expense.  Oil and gas revenues
were $19.1 million on production of 1.0 million barrels of oil equivalent
(BOE).
    "By all measures, the fourth quarter, our first as a public company, was
a resounding success," said Michael J. Grella, president and chief operating
officer.
    For the 12 months ended December 31, 1996, Costilla reported oil and gas
revenues of $53.9 million, more than twice the $21.7 million reported in 1995.
Results before a nonrecurring gain and extraordinary items were a $0.4 million
loss, compared with a $5.0 million loss in 1995.  Reported 1996 net results,
including extraordinary items consisting of an extraordinary charge of
$6.0 million and a deferred tax benefit of $1.0 million and a nonrecurring
$0.9 million gain from sale of assets, was a loss of $4.4 million, compared
with a loss of $5.0 million in 1995.  Production in 1996 was 3.3 million BOE,
nearly double the 1995 production of 1.8 million BOE.

    Proved Reserves Increase 56 Percent
    Costilla also reported that total proved reserves at year-end 1996 had
climbed 56 percent to 37.0 million BOE, up from 23.8 million BOE at the
close of 1995.  Approximately 78 percent of the Company's reserves are proved
developed.  The present value, discounted at 10 percent, of reserves was
$311.8 million, computed under the Securities and Exchange Commission's
valuation guidelines, compared with $113.3 million at year-end 1995.

   1997 Production, Success Rate Up Sharply
    By year-end 1996, Costilla's production reached a daily rate of
12,400 BOE, with average production for the fourth quarter at 11,038 BOE per
day -- up 50 percent from 7,338 BOE per day a year earlier.
    "We finished 1996 on a very positive note," Grella said, "and based on
results of our past two months of operations, we expect record production for
1997.  This serves as an endorsement of our strategy to accelerate exploration
and exploitation, as well as the success of our 3-D seismic technology in
identifying successful drilling opportunities.  Based on our current levels of
production, we expect 1997 production to be in the range of five million BOE."
    During the fourth quarter, the company drilled a total of 16 wells, of
which 14 were productive for a success rate of 87 percent.  Three wells were
drilled on the Edwards-McElroy Prospect, all of which were productive, seven
wells were drilled on the MacGyver-Green Acres Prospect, of which six were
productive, and six wells were drilled on other prospects, of which five were
productive.  For the year ended December 31, 1996, Costilla drilled a total of
36 wells -- of which 29 were productive -- resulting in a success rate for the
year of approximately 80 percent.
    The Company has previously announced its 1997 capital budget of
approximately $26.0 million, which is largely discretionary and may be
adjusted as appropriate during the year.
    Grella also noted that Costilla drilled 20 wells during January and
February 1997, with an 85 percent success rate.  These included:

    * MacGyver-Green Acres 3-D Program, Howard County, Texas -- Hamlin
      18 #1701 is the 24th well completed in this prospect.  The well is
      producing 224 barrels of oil and 277,000 cubic feet of natural gas per
      day.  The 1997 drilling plan includes 20 wells in this prospect.

    * Personville Field, Limestone County, Texas -- Tucker #4 is the third
      recently completed Cotton Valley sand well, producing at a daily rate of
      3 million cubic feet of natural gas. The Company plans 14 additional
      wells in this area.

    * Caldwell-Stone Field Program, Burleson County, Texas -- Completion of
      the first two of seven planned horizontal wells in the Austin Chalk are
      the Patterson "G" 1-H, producing 326 barrels of oil and 727,000 cubic
      feet of gas per day, and Mais-Kachtik 1-H, producing 364 barrels of oil
      and 952,000 cubic feet of gas per day.

    * Edwards-McElroy Program, Crane County, Texas -- Mobil Fee #6 is the
      15th successful well on this prospect, with a potential of 383 barrels
      of oil and 253,000 cubic feet of gas daily.  The Company plans to drill
      20 wells on this property during 1997.

    "The 1996 and early 1997 results and our outlook for the full year are
in keeping with our strategy of increasing oil and gas reserves, production
and cash flow through active exploration and exploitation," Grella added.  "As
we reported last week, we are especially encouraged by the outlook on our
Paisano Ranch prospect in McMullen County, Texas.  Our first well is being
completed and the second well is being drilled on that 8,900-acre property,
and we see potential for as many as 100 wells in the future."
    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 area of Texas and New Mexico, the
Gulf Coast, and the Rocky Mountain regions.  The Company and its predecessor
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 recent prospectus for its initial public
offering of common stock.

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