MIDLAND, Texas, Sept. 30 /PRNewswire/ -- Costilla Energy, Inc.
(Nasdaq: COSE) reported today that gas has been discovered in a Cotton Valley
pinnacle reef by the McMahon #4, a well in which the Company has a 26 percent
working interest.  The discovery well, located in Freestone County, Texas, is
operated by American Exploration Company (AMEX: AX).  The McMahon was drilled
to a total depth of 14,552 feet, encountering 340 feet of reef.  Completion
operations have commenced, and initial production is expected in November.
    "This Cotton Valley reef test was drilled on a prospect defined with 3-D
seismic data, and is located in the established portion of the reef trend,"
said Mike Grella, President and CEO of Costilla.  "Based on log data and
production from nearby reefs, the discovery well is expected to add
significant production and reserves."

    Operated Highlights In Gulf Coast Division
    Costilla also reported two recent significant operated completions in
the Company's Gulf Coast division.  The East Hamul Gas Unit 4 #2 in Colorado
County, in which the Company owns approximately 99 percent working interest,
completed in the Wilcox formation is currently producing approximately one
million cubic feet of gas per day (MMCFPD), and 100 barrels of oil per day
(BOPD).  Additionally, the Priday located in San Patricio County, in which the
Company holds a working interest of approximately 66 percent, is currently
producing at a rate of approximately one MMCFPD and 100 BOPD.
    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 of Texas and New Mexico, the
Gulf Coast, 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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