8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported) May 11, 2007

CONTANGO OIL & GAS COMPANY

(Exact Name of Registrant as Specified in Its Charter)

DELAWARE	001-16317	95-4079863
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

3700 BUFFALO SPEEDWAY, SUITE 960

HOUSTON, TEXAS 77098

(Address of principal executive offices)

(713) 960-1901

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT

On May 11, 2007, Contango Oil & Gas Company (the “Company”) entered into a Securities Purchase Agreement (the “Agreement”) with a group of private investors (the “Purchasers”), pursuant to which the Company agreed to issue and sell to the Purchasers, at a price of $5,000 per share, a total of 6,000 shares of the Company’s Series E Perpetual Cumulative Convertible Preferred Stock, par value $0.04 per share (the “Series E Preferred Stock”), for an aggregate purchase price of $30.0 million to be paid by the Purchasers. The Series E Preferred Stock is perpetual and is convertible at any time into shares of the Company’s common stock at a price of $38.00 per share. The dividend on the Series E Preferred Stock can be paid quarterly in cash at a rate of 6.0% per annum or paid-in-kind at a rate of 7.5% per annum. The Company has agreed to file a registration statement covering the shares of the Company’s common stock issuable on conversion of the Series E Preferred Stock. The Company paid a 4% commission to the placement agents in connection with the transaction.

The above description is a summary and is qualified in its entirety by the terms of the Agreement filed as Exhibit 10.1 to this Current Report on Form 8-K.

ITEM 3.02. UNREGISTERED SALES OF EQUITY SECURITIES

The disclosure set forth above under Item 1.01 is hereby incorporated by reference into this Item 3.02.

On May 17, 2007, the Company sold 6,000 shares of its Series E Preferred Stock to the Purchasers pursuant to the Agreement for an aggregate purchase price of $30.0 million. The shares were issued pursuant to the exemption from registration available under Section 4(2) of the Securities Act of 1933, as amended. The transaction did not involve a public offering and the Purchasers were accredited investors and/or qualified institutional buyers.

ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS

Exhibit No.	Description of Document
4.1	Certificate of Designations, Preferences and Relative Rights and Limitations for Series D Perpetual Cumulative Convertible Preferred Stock
10.1	Securities Purchase Agreement dated May 11, 2007
99.1	Press Release dated May 14, 2007

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

		CONTANGO OIL & GAS COMPANY
Date: May 17, 2007	By:	/s/ KENNETH R. PEAK
		Kenneth R. Peak
		Chairman and Chief Executive Officer

EX-4.1

Exhibit 4.1

CERTIFICATE OF DESIGNATIONS, PREFERENCES,

AND RELATIVE RIGHTS AND LIMITATIONS

OF

SERIES E PERPETUAL CUMULATIVE CONVERTIBLE PREFERRED STOCK

OF

CONTANGO OIL & GAS COMPANY

It is hereby certified that:

1. The name of the corporation (hereinafter called the “Corporation”) is Contango Oil & Gas Company.

2. The Certificate of Incorporation of the Corporation authorizes the issuance of preferred stock of the Corporation in series and expressly vests in the Board of Directors of the Corporation the authority provided therein to determine the rights, preferences, privileges of preferred stock and to fix the number of shares and designation of such series.

3 . On May 10, 2007, the Board of Directors of the Corporation adopted the following resolutions authorizing the creation and issuance of up to 10,000 shares of a series of preferred stock designated as “Series E Perpetual Cumulative Convertible Preferred Stock” having the designations, preferences and relative and other special rights, qualifications, limitations and restrictions set forth on Exhibit A hereto:

RESOLVED, that there is hereby created and the Corporation be, and it hereby is, authorized to issue up to 10,000 shares of Series E Perpetual Cumulative Convertible Preferred Stock having the designations, preferences and relative and other special rights, qualifications, limitations and restrictions as to be set forth in the Certificate of Designation.

RESOLVED, that the statements contained in the foregoing resolutions creating and designating the said Series E Perpetual Cumulative Convertible Preferred Stock, and fixing the number, preferences and relative, and other special rights, qualifications, limitations and restrictions thereof shall, upon the effective date of said series, be deemed to be included in and be a part of the certificate of incorporation of the Corporation pursuant to the provisions of Sections 104 and 151 of the Delaware General Corporation Law.

IN WITNESS WHEREOF, the undersigned has executed this Certificate on May 11, 2007.

/s/ Kenneth R. Peak

Kenneth R. Peak, Secretary

EXHIBIT A

CERTIFICATE OF DESIGNATIONS, PREFERENCES AND

RELATIVE RIGHTS AND LIMITATIONS OF THE

SERIES E PERPETUAL CUMULATIVE CONVERTIBLE PREFERRED STOCK

OF CONTANGO OIL & GAS COMPANY (THE “CORPORATION”)

1. Designation and Amount; Ranking.

(a) There shall be created from the 5,000,000 shares of preferred stock, par value $0.04 per share, of the Corporation authorized to be issued pursuant to the Certificate of Incorporation, a series of preferred stock, designated as the “Series E Perpetual Cumulative Convertible Preferred Stock” par value $0.04 per share (the “Series E Preferred Stock”), and the number of shares of such series shall be 10,000. Such number of shares may be decreased by resolution of the Board of Directors; provided that no decrease shall reduce the number of shares of Series E Preferred Stock to a number less than that of the shares of Series E Preferred Stock then outstanding plus the number of shares issuable in accordance with the provisions of Section 3(a) below. Except for shares of Series E Preferred Stock issuable in accordance with Section 3(a), the Corporation shall not issue any shares of Series E Preferred Stock after the initial issuance of Series E Preferred Stock.

(b) The Series E Preferred Stock will, with respect to dividend rights, redemption rights or rights upon the liquidation, winding-up or dissolution of the Corporation or otherwise rank (i) senior to all Junior Stock, (ii) on a parity with all Parity Stock and (iii) junior to all Senior Stock.

2. Definitions. As used herein, the following terms shall have the following meanings:

(a) “Accrued Dividends” shall mean, with respect to any share of Series E Preferred Stock, as of any date, the accrued and unpaid dividends on such share from and including the most recent Dividend Payment Date (or the Issue Date, if such date is prior to the first Dividend Payment Date) to but not including such date.

(b) “Accumulated Dividends” shall mean, with respect to any share of Series E Preferred Stock, as of any date, the aggregate accumulated and unpaid dividends on such share from the Issue Date until the most recent Dividend Payment Date on or prior to such date. There shall be no Accumulated Dividends with respect to any share of Series E Preferred Stock prior to the first Dividend Payment Date.

(c) “AMEX” shall mean the American Stock Exchange.

(d) “Board of Directors” shall mean the Board of Directors of the Corporation or, with respect to any action to be taken by the Board of Directors, any committee of the Board of Directors duly authorized to take such action.

(e) “Business Day” shall mean any day other than a Saturday, Sunday or other day on which commercial banks in Houston, Texas are authorized or required by law or executive order to close.

(f) “Cash Dividend Rate” shall have the meaning set forth in Section 3(a).

(g) “Certificate of Incorporation” shall mean the Certificate of Incorporation of the Corporation, as amended from time to time.

(h) “Common Stock” shall mean the common stock, par value $0.04 per share, of the Corporation, or any other class of stock resulting from successive changes or reclassifications of such common stock consisting solely of changes in par value, or from par value to no par value, or as a result of a subdivision, combination, or merger, consolidation or similar transaction in which the Corporation is a constituent corporation.

(i) “Corporation” shall have the meaning set forth in the introduction.

(j) “Conversion Price” shall mean $38.00, subject to adjustment as set forth in Section 6(c).

(k) “Conversion Ratio” shall mean the quotient of the Liquidation Preference divided by the Conversion Price in effect at the time of determination.

(l) “Conversion Shares” shall have the meaning set forth in Section 6(c)(ii).

(m) “Dividend Payment Date” shall mean March 31, June 30, September 30 and December 31 of each year, commencing June 30, 2007.

(n) “Dividend Rate” shall have the meaning set forth in Section 3(a).

(o) “Dividend Record Date” shall mean a date fixed by the Board of Directors, or a duly authorized committee thereof, for determining the Holders who are entitled to receive dividends on a Dividend Payment Date. The Dividend Record Date for a Dividend Payment Date shall be a date not less than 15 days nor more than 45 days prior to the Dividend Payment Date.

(p) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

(q) “Holder” or “holder” shall mean a holder of record of the Series E Preferred Stock.

(r) “Issue Date” shall mean the original date of issuance of the Series E Preferred Stock.

(s) “Junior Stock” shall mean the Common Stock and each other class of capital stock or series of preferred stock established after the Issue Date, by the Board of Directors, the terms of which do not expressly provide that such class or series ranks senior to or on a parity

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with the Series E Preferred Stock as to dividend rights, redemption rights or rights upon the liquidation, winding-up or dissolution of the Corporation or otherwise.

(t) “Liquidation Preference” shall mean, with respect to each share of Series E Preferred Stock, $5,000 (as adjusted for stock splits, reverse stock splits, subdivisions, combinations, and the like of Series E Preferred Stock).

(u) “Mandatory Conversion Date” shall have the meaning set forth in Section 7(b).

(v) “Market Value” shall mean the average closing price of the Common Stock for a five consecutive trading day period on the AMEX (or such other national securities exchange or automated quotation system on which the Common Stock is then listed or authorized for quotation) or, if the Common Stock is not so listed or authorized for quotation, an amount determined in good faith by the Board of Directors to be the fair value of the Common Stock.

(w) “Officer” means the Chairman of the Board of Directors, the President, any Vice President, the Treasurer, the Secretary or any Assistant Secretary of the Corporation.

(x) “Parity Stock” shall mean each class of capital stock or series of preferred stock established after the Issue Date by the Board of Directors, the terms of which expressly provide that such class or series will rank on a parity with the Series E Preferred Stock as to dividend rights, redemption rights or rights upon the liquidation, winding-up or dissolution of the Corporation or otherwise.

(y) “Person” shall mean any individual, corporation, general partnership, limited partnership, limited liability partnership, joint venture, association, joint-stock company, trust, limited liability company, unincorporated organization or government or any agency or political subdivision thereof.

(z) “PIK Dividend Rate” shall have the meaning set forth in Section 3(a).

(aa) “SEC” or “Commission” shall mean the Securities and Exchange Commission.

(bb) “Securities Act” means the Securities Act of 1933, as amended.

(cc) “Senior Stock” shall mean up to $10,000,000 aggregate purchase price of any series of preferred stock established after the Issue Date by the Board of Directors, the terms of which expressly provide that such series will rank senior to the Series E Preferred Stock as to dividend rights, redemption rights or rights upon the liquidation, winding-up or dissolution of the Corporation or otherwise.

(dd) “Series E Preferred Stock” shall have the meaning set forth in Section 1(a).

(ee) “Transaction” shall have the meaning set forth in Section 6(g).

(ff) “Voting Stock” shall mean, with respect to any Person, securities of any class or classes of Capital Stock in such Person entitling the holders thereof (whether at all times or only so long as no senior class of stock has voting power by reason of contingency) to vote in the

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election of members of the Board of Directors or other governing body of such Person. For purposes of this definition, “Capital Stock” shall mean, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of corporate stock or partnership interests and any and all warrants, options and rights with respect thereto (whether or not currently exercisable), including each class of common stock and preferred stock of such Person.

3. Dividends.

(a) The holders of shares of the outstanding Series E Preferred Stock shall be entitled, when, as and if declared by the Board of Directors out of funds of the Corporation legally available therefor, to receive cumulative dividends at the rate per annum of (i) 6% per share on the Liquidation Preference if paid in cash (the “Cash Dividend Rate”) or, (ii) 7.5% per share on the Liquidation Preference if paid in shares of Series E Preferred Stock (the “PIK Dividend Rate”) (the applicable dividend rate being hereafter referred to as the “Dividend Rate”). Dividends payable for each full dividend period will be computed by dividing the Dividend Rate by four and shall be payable in arrears on each Dividend Payment Date (commencing June 30, 2007) for the quarterly period ending immediately prior to such Dividend Payment Date, to the holders of record of Series E Preferred Stock at the close of business on the Dividend Record Date applicable to such Dividend Payment Date. Such dividends shall be cumulative from the most recent date as to which dividends shall have been paid or, if no dividends have been paid, from the Issue Date (whether or not in any dividend period or periods there shall be funds of the Corporation legally available for the payment of such dividends) and shall accrue on a day-to-day basis, whether or not earned or declared, from and after the Issue Date. Dividends payable for any partial dividend period shall be computed on the basis of actual days elapsed in the period and a 360-day year consisting of twelve 30-day months. Accumulations of dividends on shares of Series E Preferred Stock shall not bear interest.

If, on any Dividend Payment Date, the holders of the Series E Preferred Stock shall not have received the full dividends provided for in this Section 3(a) in cash or in kind, then such dividends shall cumulate, whether or not earned or declared, with additional dividends thereon, at the PIK Dividend Rate applicable to the Series E Preferred Stock as provided in this Section 3(a), for each succeeding full quarterly dividend period during which such dividends shall remain unpaid.

(b) When dividends are not paid in full on the Series E Preferred Stock and any Parity Stock, all dividends declared on the Series E Preferred Stock and any Parity Stock shall be declared pro rata so that the amount of dividends declared per share on the Series E Preferred Stock and such Parity Stock shall in all cases bear to each other the same ratio that the accumulated and unpaid dividends per share on the Series E Preferred Stock and such Parity Stock bear to each other. Except as set forth in the preceding sentence, unless full dividends on the Series E Preferred Stock have been paid for all past dividend periods, no dividends (other than in Common Stock or other shares of Junior Stock) shall be declared or paid or set aside for payment, nor shall any other distribution be made, on the Common Stock, any other Junior Stock or any Parity Stock.

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(c) Unless full dividends on the Series E Preferred Stock have been paid, or declared and a sum sufficient for payment thereof set apart for such payment, for all past dividend periods, the Corporation may not redeem, repurchase or otherwise acquire for any consideration (nor may the Corporation pay or make available any moneys for a sinking fund for the redemption of) any shares of Common Stock, any Junior Stock or any Parity Stock except by conversion into or exchange for shares of Junior Stock.

(d) Holders shall not be entitled to any dividends on the Series E Preferred Stock, whether payable in cash, property or stock, in excess of full cumulative dividends.

(e) The Board of Directors may declare dividends payable in shares of Series E Preferred Stock in lieu of cash dividends on a Dividend Payment Date. In the event the Board of Directors elects to declare a dividend payable in shares of Series E Preferred Stock, each holder of shares of Series E Preferred Stock shall be entitled to receive such additional shares of Series E Preferred Stock (or cash in lieu of a fraction thereof) equal to the product of (x) the number of shares of Series E Preferred Stock held by such holder multiplied by (y) the PIK Dividend Rate.

(f) The Holders at the close of business on a Dividend Record Date will be entitled to receive the dividend payment on those shares on the corresponding Dividend Payment Date notwithstanding the subsequent conversion thereof or the Corporation’s default in payment of the dividend due on that Dividend Payment Date. However, shares of Series E Preferred Stock surrendered for conversion pursuant to Section 6 during the period between the close of business on any Dividend Record Date and the close of business on the day immediately preceding the applicable Dividend Payment Date must be accompanied by payment of an amount equal to the dividend payable on the shares on that Dividend Payment Date. A Holder on a Dividend Record Date who (or whose transferee) tenders any shares for conversion on the corresponding Dividend Payment Date will receive the dividend payable by the Corporation on the Series E Preferred Stock on that date, and the converting holder need not include payment in the amount of such dividend upon surrender of shares of Series E Preferred Stock for conversion. The Corporation shall make no payment or allowance for unpaid dividends, whether or not in arrears, on converted shares or for dividends on the shares of Common Stock issued upon conversion, except as provided above with respect to a voluntary conversion pursuant to Section 6, and except that a Holder shall always be entitled to receive any Accumulated Dividends with respect to a voluntary conversion pursuant to Section 6.

4. Voting Rights.

(a) The shares of Series E Preferred Stock shall have no voting rights except as set forth below or as otherwise required by Delaware law from time to time:

(i) So long as any shares of Series E Preferred Stock remain outstanding, unless a greater percentage shall then be required by law, the affirmative vote or consent of the holders of at least a majority of the outstanding shares of the Series E Preferred Stock, voting as a single class, shall be required to (A) amend, alter or repeal, in any manner whatsoever, the designations, powers, preferences, relative, participating, optional or other

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special rights, qualifications, limitations and restrictions of the Series E Preferred Stock, or (B) amend or repeal any provision of or add any provision to, the Certificate of Incorporation if that action would adversely alter or change the rights, preferences or privileges of the Series E Preferred Stock. In exercising the voting rights set forth in this Section 4(a)(i), each share of Series E Preferred Stock shall be entitled to one vote.

(ii) Holders shall be entitled to vote, together with the holders of Common Stock, as one class on all matters submitted to a vote of stockholders of the Corporation, in the same manner and with the same effect as the holders of Common Stock. In any such vote, each share of Series E Preferred Stock shall entitle the holder thereof to one vote per share for each share of Common Stock (including fractional shares) into which each share of Series E Preferred Stock is then convertible, rounded to the nearest one-tenth of a share.

(b) The Corporation may authorize, increase the authorized amount of, or issue any shares of Parity Stock or Junior Stock, without the consent of the holders of Series E Preferred Stock, and in taking such actions the Corporation shall not be deemed to have affected adversely the rights, preferences, privileges or voting rights of Holders.

5. Liquidation Preference.

(a) In the event of any liquidation, winding-up or dissolution of the Corporation, whether voluntary or involuntary, each Holder shall be entitled to receive and to be paid out of the assets of the Corporation available for distribution to its stockholders the Liquidation Preference plus Accumulated Dividends and Accrued Dividends thereon in preference to the holders of, and before any payment or distribution is made on, any Junior Stock, including, without limitation, on any Common Stock.

(b) Neither the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all the assets or business of the Corporation (other than in connection with the liquidation, winding-up or dissolution of its business) nor the merger or consolidation of the Corporation into or with any other Person shall be deemed to be a liquidation, winding-up or dissolution, voluntary or involuntary, for the purposes of this Section 5.

(c) After the payment to the Holders of full preferential amounts provided for in this Section 5, the Holders as such shall have no right or claim to any of the remaining assets of the Corporation.

(d) In the event the assets of the Corporation available for distribution to the Holders upon any liquidation, winding-up or dissolution of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to Section 5(a), no such distribution shall be made on account of any shares of Parity Stock upon such liquidation, winding-up or dissolution unless proportionate distributable

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amounts shall be paid on account of the shares of Series E Preferred Stock, ratably, in proportion to the full distributable amounts for which holders of all Series E Preferred Stock and of any Parity Stock are entitled upon such liquidation, winding-up or dissolution.

(e) Upon any voluntary or involuntary liquidation, winding-up or dissolution of the Corporation, Holders will not be entitled to receive any liquidating distributions until all amounts payable upon any such event to holders of outstanding shares of any series of Senior Stock have been paid in full.

6. Conversion Rights.

(a) Each Holder shall have the right, at its option, exercisable at any time and from time to time from the Issue Date to convert, subject to the terms and provisions of this Section 6, any or all of such Holder’s shares of Series E Preferred Stock. In such case, the shares of Series E Preferred Stock shall be converted into such whole number of fully paid and nonassessable shares of Common Stock as is equal, subject to Section 6(g), to the product of the number of shares of Series E Preferred Stock being so converted multiplied by the Conversion Ratio then in effect. The conversion right of a Holder shall be exercised by the Holder by the surrender to the Corporation of the certificates representing shares to be converted at any time during usual business hours at its principal place of business, accompanied by duly executed written notice to the Corporation in that the Holder elects to convert all or a portion of the shares of Series E Preferred Stock represented by such certificate and specifying the name or names (with address) in which a certificate or certificates for shares of Common Stock are to be issued and (if so required by the Corporation) by a written instrument or instruments of transfer in form reasonably satisfactory to the Corporation duly executed by the Holder or its duly authorized legal representative and transfer tax stamps or funds therefor, if required pursuant to Section 6(i). Immediately prior to the close of business on the date of receipt by the Corporation of notice of conversion of shares of Series E Preferred Stock, each converting Holder shall be deemed to be the Holder of record of Common Stock issuable upon conversion of such Holder’s Series E Preferred Stock notwithstanding that the share register of the Corporation shall then be closed or that certificates representing such Common Stock shall not then be actually delivered to such Holder. Upon notice from the Corporation, each Holder of Series E Preferred Stock so converted shall promptly surrender to the Corporation certificates representing the shares so converted, duly endorsed in blank or accompanied by proper instruments of transfer. On the date of any conversion, all rights with respect to the shares of Series E Preferred Stock so converted, including the rights, if any, to receive notices, will terminate, except only the rights of Holders thereof to (i) receive dividends on the shares of Series E Preferred Stock so converted in accordance with Section 3(e); (ii) receive certificates for the number of whole shares of Common Stock into which such shares of Series E Preferred Stock have been converted and cash, in lieu of any fractional shares as provided in Section 6(f); and (iii) exercise the rights to which they are entitled as holders of Common Stock.

(b) If the last day for the exercise of the conversion right shall not be a Business Day, then such conversion right may be exercised on the next preceding Business Day.

(c) The Conversion Price shall be subject to adjustment as follows:

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(i) In case the Corporation shall at any time or from time to time (A) pay a dividend (or other distribution) on the Common Stock payable in shares of Common Stock (other than the issuance of shares of Common Stock in connection with the conversion of the Series E Preferred Stock or any other series of preferred stock of the Corporation that is convertible into Common Stock); (B) subdivide or split the outstanding shares of Common Stock into a larger number of shares; (C) combine the outstanding shares of Common Stock into a smaller number of shares; or (D) issue any shares of its capital stock in a reclassification of the Common Stock, then, and in each such case, the Conversion Price in effect immediately prior to such event shall be adjusted (and any other appropriate actions shall be taken by the Corporation) so that the Holder of any share of Series E Preferred Stock thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock that such Holder would have owned or would have been entitled to receive upon or by reason of any of the events described above, had such share of Series E Preferred Stock been converted into shares of Common Stock immediately prior to the occurrence of such event. An adjustment made pursuant to this Section 6(c)(i) shall become effective retroactively (x) in the case of any such dividend or distribution, to the day immediately following the close of business on the record date for the determination of holders of Common Stock entitled to receive such dividend or distribution or (y) in the case of any such subdivision, split, combination or reclassification, to the close of business on the day upon which such corporate action becomes effective.

(ii) In case the Corporation shall at any time or from time to time issue to all holders of its Common Stock rights, options or warrants entitling the holders thereof to subscribe for or purchase shares of Common Stock (or securities convertible into or exchangeable for shares of Common Stock) at a price per share less than the Market Value for the period ending on the date of issuance (treating the price per share of any security convertible, or exchangeable or exercisable into Common Stock as equal to (A) the sum of the price paid to acquire such security convertible, exchangeable or exercisable into Common Stock plus any additional consideration payable (without regard to any anti-dilution adjustments) upon the conversion, exchange or exercise of such security into Common Stock divided by (B) the number of shares of Common Stock into which such convertible, exchangeable or exercisable security is initially convertible, exchangeable or exercisable), other than (I) issuances of such rights, options or warrants if the Holder would be entitled to receive such rights, options or warrants upon conversion at any time of shares of Series E Preferred Stock into Common Stock and (II) issuances that are subject to certain triggering events (until such time as such triggering events occur), then, and in each such case, the Conversion Price then in effect shall be adjusted by dividing the Conversion Price in effect on the day immediately prior to the record date of such issuance by a fraction (y) the numerator of which shall be the sum of the number of shares of Common Stock outstanding on such record

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date plus the number of additional shares of Common Stock issued or to be issued upon or as a result of the issuance of such rights, options or warrants (or the maximum number into or for which such convertible or exchangeable securities initially may convert or exchange or for which such options, warrants or other rights initially may be exercised) and (z) the denominator of which shall be the sum of the number of shares of Common Stock outstanding on such record date plus the number of shares of Common Stock which the aggregate consideration for the total number of such additional shares of Common Stock so issued (or into or for which such convertible or exchangeable securities may convert or exchange or for which such options, warrants or other rights may be exercised plus the aggregate amount of any additional consideration initially payable upon the conversion, exchange or exercise of such security) would purchase at the Market Value for the period ending on the date of conversion; provided, that if the Corporation distributes rights or warrants (other than those referred to above in this paragraph (c)(ii)) pro rata to the holders of Common Stock, so long as such rights or warrants have not expired or been redeemed by the Corporation, (y) the holder of any Series E Preferred Stock surrendered for conversion shall be entitled to receive upon such conversion, in addition to the shares of Common Stock then issuable upon such conversion (the “Conversion Shares”), a number of rights or warrants to be determined as follows: (i) if such conversion occurs on or prior to the date for the distribution to the holders of rights or warrants of separate certificates evidencing such rights or warrants (the “Distribution Date”), the same number of rights or warrants to which a holder of a number of shares of Common Stock equal to the number of Conversion Shares is entitled at the time of such conversion in accordance with the terms and provisions applicable to the rights or warrants, and (ii) if such conversion occurs after the Distribution Date, the same number of rights or warrants to which a holder of the number of shares of Common Stock into which such Series E Preferred Stock was convertible immediately prior to such Distribution Date would have been entitled on such Distribution Date had such Series E Preferred Stock been converted immediately prior to such Distribution Date in accordance with the terms and provisions applicable to the rights and warrants, and (z) the Conversion Price shall not be subject to adjustment on account of any declaration, distribution or exercise of such rights or warrants.

(iii) In case the Corporation shall at any time or from time to time (A) make a pro rata distribution to all holders of shares of its Common Stock consisting exclusively of cash (excluding any cash distributed upon a merger or consolidation to which paragraph (g) below applies), that, when combined together with (x) all other such all-cash distributions made within the then-preceding 12 months in respect of which no adjustment has been made and (y) any cash and the fair market value of other consideration paid or payable in respect of any tender offer by the Corporation or any of its subsidiaries for shares of Common Stock

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concluded within the then-preceding 12 months in respect of which no adjustment pursuant to this Section 6(c) has been made, in the aggregate exceeds 10% of the Corporation’s market capitalization (defined as the product of the Market Value for the period ending on the record date of such distribution times the number of shares of Common Stock outstanding on such record date) on the record date of such distribution; (B) complete a tender or exchange offer by the Corporation or any of its subsidiaries for shares of Common Stock that involves an aggregate consideration that, together with (I) any cash and other consideration payable in a tender or exchange offer by the Corporation or any of its subsidiaries for shares of Common Stock expiring within the then-preceding 12 months in respect of which no adjustment pursuant to this Section 6(c) has been made and (II) the aggregate amount of any such all-cash distributions referred to in clause (A) above to all holders of shares of Common Stock within the then-preceding 12 months in respect of which no adjustments have been made, exceeds 10% of the Corporation’s market capitalization on the expiration of such tender offer; or (C) make a distribution to all holders of its Common Stock consisting of evidences of indebtedness, shares of its capital stock other than Common Stock or assets (including securities, but excluding those dividends, rights, options, warrants and distributions referred to in paragraph (c)(i) or (c)(ii) above or clause (A) of this paragraph (c)(iii)), then, and in each such case, the Conversion Price then in effect shall be adjusted by dividing the Conversion Price in effect immediately prior to the date of such distribution or completion of such tender or exchange offer, as the case may be, by a fraction (x) the numerator of which shall be the Market Value for the period ending on the record date referred to below, or, if such adjustment is made upon the completion of a tender or exchange offer, on the payment date for such offer, and (y) the denominator of which shall be such Market Value less the then fair market value (as determined by the Board of Directors of the Corporation) of the portion of the cash, evidences of indebtedness, securities or other assets so distributed or paid in such tender or exchange offer, applicable to one share of Common Stock (but such denominator shall not be less than one); provided, however, that no adjustment shall be made with respect to any distribution of rights to purchase securities of the Corporation if the Holder would otherwise be entitled to receive such rights upon conversion at any time of shares of Series E Preferred Stock into shares of Common Stock unless such rights are subsequently redeemed by the Corporation, in which case such redemption shall be treated for purposes of this Section 6(c)(iii) as a dividend on the Common Stock. Such adjustment shall be made whenever any such distribution is made or tender or exchange offer is completed, as the case may be, and shall become effective retroactively to a date immediately following the close of business on the record date for the determination of stockholders entitled to receive such distribution.

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(iv) Notwithstanding anything herein to the contrary, no adjustment under this Section 6(c) need be made to the Conversion Price unless such adjustment would require an increase or decrease of at least 1% of the Conversion Price then in effect. Any lesser adjustment shall be carried forward and shall be made at the time of and together with the next subsequent adjustment, if any, which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least 1% of such Conversion Price.

(d) If the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, and shall thereafter (and before the dividend or distribution has been paid or delivered to stockholders) legally abandon its plan to pay or deliver such dividend or distribution, then thereafter no adjustment in the Conversion Price then in effect shall be required by reason of the taking of such record.

(e) Upon any increase or decrease in the Conversion Price, then, and in each such case, the Corporation promptly shall deliver to each Holder a certificate signed by an authorized officer of the Corporation, setting forth in reasonable detail the event requiring the adjustment and the method by which such adjustment was calculated and specifying the increased or decreased Conversion Price then in effect following such adjustment.

(f) No fractional shares or securities representing fractional shares of Common Stock shall be issued upon the conversion of any shares of Series E Preferred Stock, whether voluntary or mandatory. If more than one share of Series E Preferred Stock shall be surrendered for conversion at one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate Liquidation Preference of the shares of Series E Preferred Stock so surrendered. If the conversion of any share or shares of Series E Preferred Stock results in a fraction, an amount equal to such fraction multiplied by the last reported sale price of the Common Stock on the AMEX (or on such other national securities exchange or automated quotation system on which the Common Stock is then listed for trading or authorized for quotation) or, if the Common Stock is not then so listed or authorized for quotation, an amount determined in good faith by the Board of Directors to be the fair value of the Common Stock at the close of business on the trading day next preceding the day of conversion shall be paid to such holder in cash by the Corporation.

(g) In the event of any reclassification of outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value), or in the event of any consolidation or merger of the Corporation with or into another Person or any merger of another Person with or into the Corporation (other than a consolidation or merger in which the Corporation is the resulting or surviving Person and which does not result in any reclassification or change of outstanding Common Stock), or in the event of any sale or other disposition to another Person of all or substantially all of the assets of the Corporation (computed on a consolidated basis) (any of the foregoing, a “Transaction”), each share of Series E Preferred Stock then outstanding shall, without the consent of any Holder, become convertible at any time, at the option of the Holder thereof, only into the kind and amount of securities (of the Corporation or another issuer), cash and other property receivable upon such Transaction by a holder of the number of shares of Common Stock into which such share of Series E Preferred

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Stock could have been converted immediately prior to such Transaction, after giving effect to any adjustment event. The provisions of this Section 6(g) and any equivalent thereof in any such securities similarly shall apply to successive Transactions. The provisions of this Section 6(g) shall be the sole right of Holders in connection with any Transaction and such Holders shall have no separate vote thereon.

(h) The Corporation shall at all times reserve and keep available for issuance upon the conversion of the Series E Preferred Stock such number of its authorized but unissued shares of Common Stock as will from time to time be sufficient to permit the conversion of all outstanding shares of Series E Preferred Stock, and shall take all action required to increase the authorized number of shares of Common Stock if at any time there shall be insufficient unissued shares of Common Stock to permit such reservation or to permit the conversion of all outstanding shares of Series E Preferred Stock.

(i) The issuance or delivery of certificates for Common Stock upon the conversion of shares of Series E Preferred Stock shall be made without charge to the converting holder of shares of Series E Preferred Stock for such certificates or for any tax in respect of the issuance or delivery of such certificates or the securities represented thereby, and such certificates shall be issued or delivered in the respective names of, or in such names as may be directed by, the Holders of the shares of Series E Preferred Stock converted; provided, however, that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any such certificate in a name other than that of the Holder of the shares of Series E Preferred Stock converted, and the Corporation shall not be required to issue or deliver such certificate unless or until the Person or Persons requesting the issuance or delivery thereof shall have paid to the Corporation the amount of such tax or shall have established to the reasonable satisfaction of the Corporation that such tax has been paid.

7. Mandatory Conversion.

(a) At any time on or after November 17, 2008, the Corporation shall have the right, at its option, to cause the Series E Preferred Stock, in whole but not in part, to be automatically converted into that number of whole shares of Common Stock for each share of Series E Preferred Stock equal to the Conversion Ratio then in effect, with any resulting fractional shares of Common Stock to be settled in accordance with Section 6(f). The Corporation may exercise its right to cause a mandatory conversion pursuant to this Section 7(a) only if the closing price of the Common Stock equals or exceeds 130% of the Conversion Price then in effect for at least 20 trading days in any consecutive 30-day trading period on the AMEX (or another national securities exchange or the Nasdaq National Market), including the last trading day of such 30-day period.

(b) To exercise the mandatory conversion right described in Section 7(a), the Corporation shall give notice by mail or by publication (with subsequent prompt notice by mail) to the Holders (not more than four Business Days after the date of the notice) of the mandatory conversion announcing the Corporation’s intention to convert the Series E Preferred Stock. The conversion date will be a date selected by the Corporation (the “Mandatory Conversion Date”) and will be no more than five Business Days after the date on which the Corporation issues the notice described in this Section 7(b).

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(c) In addition to any information required by applicable law or regulation, the notice of a mandatory conversion described in Section 7(b) shall state, as appropriate: (i) the Mandatory Conversion Date; (ii) the number of shares of Common Stock to be issued upon conversion of each share of Series E Preferred Stock, and (iii) that dividends on the Series E Preferred Stock to be converted will cease to accrue on the Mandatory Conversion Date.

(d) On and after the Mandatory Conversion Date, dividends will cease to accrue on the Series E Preferred Stock called for a mandatory conversion pursuant to Section 7(a) and all rights of Holders will terminate except for the right to receive the whole shares of Common Stock issuable upon conversion thereof and cash, in lieu of any fractional shares of Common Stock in accordance with Section 6(f). The dividend payment with respect to the Series E Preferred Stock called for a mandatory conversion pursuant to Section 7(a) on a date during the period between the close of business on any Dividend Record Date to the close of business on the corresponding Dividend Payment Date will be payable on such Dividend Payment Date to the record holder of such share on such Dividend Record Date if such share has been converted after such Dividend Record Date and prior to such Dividend Payment Date. Except as provided in the immediately preceding sentence with respect to a mandatory conversion pursuant to Section 7(a), no payment or adjustment will be made upon conversion of Series E Preferred Stock for Accrued Dividends or for dividends with respect to the Common Stock issued upon such conversion.

(e) The Corporation may not authorize or give notice of any mandatory conversion pursuant to Section 7(a) unless, prior to giving the conversion notice, all Accumulated Dividends on the Series E Preferred Stock for periods ended prior to the date of such conversion notice shall have been paid in full.

(f) In addition to the mandatory conversion right described in Section 7(a), if the number of shares of Series E Preferred Stock outstanding is less than 10% of the number of shares of Series E Preferred Stock issued on the Issue Date, the Corporation shall have the right, at any time on or after May 17, 2011, at its option, to cause the Series E Preferred Stock, in whole but not in part, to be automatically converted into that number of whole shares of Common Stock equal to the quotient of (i) the Liquidation Preference divided by (ii) the lesser of (A) the Conversion Price then in effect and (B) the Market Value for the five trading day period ending on the second trading day immediately prior to the Mandatory Conversion Date, with any resulting fractional shares of Common Stock to be settled in cash in accordance with Section 6(f). The provisions of clauses (b), (c), (d) and (e) of this Section 7 shall apply to any mandatory conversion pursuant to this clause (f); provided, that (i) the Mandatory Conversion Date described in Section 7(b) shall not be less than 15 days nor more than 30 days after the date on which the Corporation issues a notice pursuant to Section 7(b) announcing such mandatory conversion, and (ii) the notice of mandatory conversion described in Section 7(c) will not state the number of shares of Common Stock to be issued upon conversion of each share of Series E Preferred Stock, but instead will state the basis for determining the number of shares of Common Stock to be issued as set forth in this Section 7(f).

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8. Consolidation, Merger and Sale of Assets.

(a) The Corporation, without the consent of the Holders, may consolidate with or merge into any other Person or convey, transfer or lease all or substantially all its assets to any Person or may permit any Person to consolidate with or merge into, or transfer or lease all or substantially all its properties to, the Corporation; provided, however, that (a) the successor, transferee or lessee is organized under the laws of the United States or any political subdivision thereof, and (b) the shares of Series E Preferred Stock will become shares of such successor, transferee or lessee, having in respect of such successor, transferee or lessee the same powers, preferences and relative participating, optional or other special rights and the qualification, limitations or restrictions thereon, the Series E Preferred Stock had immediately prior to such transaction.

(b) Upon any consolidation by the Corporation with, or merger by the Corporation into, any other person or any conveyance, transfer or lease of all or substantially all the assets of the Corporation as described in Section 8(a), the successor resulting from such consolidation or into which the Corporation is merged or the transferee or lessee to which such conveyance, transfer or lease is made, will succeed to, and be substituted for, and may exercise every right and power of, the Corporation under the shares of Series E Preferred Stock, and thereafter, except in the case of a lease, the predecessor (if still in existence) will be released from its obligations and covenants with respect to the Series E Preferred Stock.

9. Redemption.

(a) The Corporation may not redeem the shares of Series E Preferred Stock prior to May 17, 2010. At any time on or after May 17, 2010 and prior to May 17, 2012, the Corporation may, at its option, redeem all, but not a portion, of the shares of Series E Preferred Stock at a cash redemption price per share equal to (i) 105% of the Liquidation Preference, plus (ii) all Accumulated Dividends and Accrued Dividends to the date of redemption. The date of redemption shall be a date fixed by the Corporation not less than 30 nor more than 60 days after the date of the notice referred to in Section 9(c).

(b) At any time on or after May 17, 2012, the Corporation may, at its option, redeem all, but not a portion, of the outstanding shares of Series E Preferred Stock at a cash redemption price per share equal to the Liquidation Preference plus all Accumulated Dividends and Accrued Dividends to the date of redemption. The date of redemption shall be a date fixed by the Corporation not less than 30 nor more than 60 days after the date of the notice referred to in Section 9(c).

(c) If the Corporation elects to redeem the Series E Preferred Stock in accordance with either Section 9(a) or Section 9(b), it will notify the Holders of its intention to redeem the Series E Preferred Stock by mailing a notice of its intention to redeem the Series E Preferred Stock to all Holders.

(d) In addition to any information required by applicable law, regulation or stock exchange rule, the notice of redemption will state:

(i) the redemption date;

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(ii) the redemption price to be paid in respect of each share of Series E Preferred Stock;

(iii) that dividends on the Series E Preferred Stock will cease to be payable on the redemption date, unless the Corporation defaults in making payment of any cash payable upon redemption;

(iv) that the option of holders of Series E Preferred Stock to convert shares of Series E Preferred Stock into Common Stock will terminate at the close of business on the Business Day immediately preceding the redemption date, unless the Corporation defaults in making payment of any cash payable upon redemption;

(v) the Conversion Price then in effect; and

(vi) that shares of Series E Preferred Stock must be surrendered to the Corporation in order to receive the redemption payment and the procedures for surrendering shares of Series E Preferred Stock.

(e) Notice having been given as provided above, from and after the date fixed for the redemption (unless the Corporation shall fail to make available the money necessary to effect such redemption), the Holders shall cease to be stockholders with respect to the Corporation’s shares of Series E Preferred Stock and shall have no interest in or claim against the Corporation by virtue thereof and shall have no voting or other right with respect to such shares, except the right to receive the moneys payable upon such redemption from the Corporation, less any required tax withholding amount, without interest thereon, upon surrender (and endorsement or assignment of transfer, if required by the Corporation and so stated in the notice) of their certificates, and the shares represented thereby shall no longer be deemed to be outstanding. The Corporation may, at its option, at any time after a notice of redemption has been given, deposit the redemption price for the shares of Series E Preferred Stock, plus any Accumulated Dividends and Accrued Dividends thereon to the date fixed for redemption, with an escrow agent, as a trust fund for the benefit of the Holders, together with irrevocable instructions and authority to such escrow agent that such funds be delivered upon redemption of such shares and to pay, on and after the date fixed for redemption or prior thereto, the redemption price of the shares to their respective Holders upon the surrender of their share certificates. From and after the making of such deposit, the Holders shall cease to be stockholders with respect to such shares and shall have no interest in or claim against the Corporation by virtue thereof and shall have no voting or other rights with respect to such shares, except the right to receive from such trust fund the moneys payable upon such redemption, without interest thereon, upon surrender (and endorsement, if required by the Corporation) of their certificates, and the shares represented thereby shall no longer be deemed to be outstanding. Any balance of such moneys remaining unclaimed at the end of the two-year period commencing on the date fixed for redemption shall be repaid to the Corporation upon its request expressed in a resolution of its Board of Directors.

(f) The right of Holders to convert shares of Series E Preferred Stock will terminate at the close of business on the Business Day immediately preceding the redemption date, unless the Corporation defaults in making payment of any cash payable upon redemption.

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10. Other Provisions.

(a) With respect to any notice to a Holder required to be provided hereunder, neither failure to mail such notice, nor any defect therein or in the mailing thereof, to any particular holder shall affect the sufficiency of the notice or the validity of the proceedings referred to in such notice with respect to the other holders or affect the legality or validity of any distribution, rights, warrant, reclassification, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding-up, or the vote upon any such action. Any notice which was mailed in the manner herein provided shall be conclusively presumed to have been duly given whether or not the holder receives the notice.

(b) Shares of Series E Preferred Stock issued and reacquired will be retired and canceled promptly after reacquisition thereof and, upon compliance with the applicable requirements of Delaware law, have the status of authorized but unissued shares of preferred stock of the Corporation undesignated as to series and may with any and all other authorized but unissued shares of preferred stock of the Corporation be designated or redesignated and issued or reissued, as the case may be, as part of any series of preferred stock of the Corporation, except that any issuance or reissuance of shares of Series E Preferred Stock must be in compliance with this Certificate of Designation.

(c) The shares of Series E Preferred Stock shall be issuable only in whole shares.

(d) All notice periods referred to herein shall commence on the date of the mailing of the applicable notice.

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EX-10.1

Exhibit 10.1

SECURITIES PURCHASE AGREEMENT

dated as of May 11, 2007

between

CONTANGO OIL & GAS COMPANY

and

THE PURCHASERS NAMED IN THIS AGREEMENT

Up to 6,000 Shares of Series E Perpetual Cumulative Convertible Preferred Stock

TABLE OF CONTENTS

			Page
1.	Agreement to Purchase Securities		1
2.	Closing		1
3.	Purchasers’ Representations and Warranties		1
	3.1	Investment Intent	1
	3.2	Access to Information	2
	3.3	Accredited Investor	2
	3.4	Knowledge and Experience	2
	3.5	Suitability	2
	3.6	Ability to Bear Risk of Loss	2
	3.7	Non-Registered Securities	2
	3.8	Truth and Accuracy	2
	3.9	Authority	3
	3.10	No Violation	3
	3.11	Enforceability	3
	3.12	Reliance on Own Advisers	3
	3.13	Scope of Business	3
	3.14	Brokers or Finders	3
	3.15	Short Sales	3
4.	Issuer’s Representations and Warranties		4
	4.1	Corporate Existence; Authority	4
	4.2	Enforceability	4
	4.3	Capitalization	4
	4.4	No Conflicts	5
	4.5	SEC Documents	5
	4.6	Litigation	5
	4.7	No Material Adverse Change	5
	4.8	Environmental Matters	5
	4.9	Truth and Accuracy	6
	4.10	Compliance with Laws, Other Instruments	6
	4.11	Observance of Agreements, Statutes and Orders	6
	4.12	Brokers or Finders	6
5.	Conditions of Purchasers’ Obligations at Closing		7
	5.1	Representations and Warranties	7
	5.2	Performance	7
	5.3	Proceedings and Documents	7
	5.4	Opinion of Issuer Counsel	7
	5.5	Reservation of Converted Shares	7
	5.6	Consents, Permits, and Waivers	7
	5.7	Secretary’s Certificate	7
6.	Conditions of the Issuer’s Obligations at Closing		7

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TABLE OF CONTENTS (continued)

			Page
	6.1	Representations and Warranties	8
	6.2	Payment of Purchase Price	8
	6.3	Qualifications	8
7.	Restrictions on Transfer		8
	7.1	Resale Restrictions	8
	7.2	Restrictive Legend	8
	7.3	Illiquid Investment	8
8.	Registration of the Converted Shares; Compliance with the Securities Act.		9
	8.1	Registration Procedures and Other Matters	9
	8.2	Transfer of Shares After Registration; Suspension.	10
	8.3	Indemnification	11
	8.4	Termination of Conditions and Obligations	15
9.	Notices		15
10.	Reliance		16
11.	Miscellaneous		16
	11.1	Survival	16
	11.2	Assignment	16
	11.3	Execution and Delivery of Agreement	16
	11.4	Titles	16
	11.5	Severability	16
	11.6	Entire Agreement	16
	11.7	Waiver and Amendment	16
	11.8	Counterparts	17
	11.9	Governing Law	17
	11.10	Attorney’s Fees	17

ii

TABLE OF CONTENTS (continued)

		Page
Schedules
1	List of Purchasers
4.3(d)	Outstanding Subscriptions, Options, Warrants, Convertible Securities, etc.
4.3(e)	Third Party Registration Rights
Exhibits
A	Accredited Investor Certificate
B	Certificate of Designations of Series E Perpetual Cumulative Convertible Preferred Stock
C	Opinion of Morgan, Lewis & Bockius LLP

SECURITIES PURCHASE AGREEMENT

This SECURITIES PURCHASE AGREEMENT (“Agreement”) is made and entered into as of May 11, 2007, by and between Contango Oil & Gas Company, a Delaware corporation (the “Issuer”), and each of the persons listed on Schedule 1 attached to this Agreement (each a “Purchaser” and collectively the “Purchasers”).

WHEREAS, the Issuer desires to issue and to sell to the Purchasers, and the Purchasers desire to purchase from the Issuer, the Series E Preferred Stock (as hereinafter defined), all in accordance with the terms and provisions of this Agreement; and

NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties and covenants herein contained, the parties hereto hereby agree as follows:

1. Agreement to Purchase Securities. Subject to the terms and conditions hereinafter set forth in this Agreement, each Purchaser hereby agrees severally and not jointly to purchase at the Closing, and the issuer agrees to sell and issue to each Purchaser at the Closing at a price of $5,000 per share, the number of shares of the Issuer’s Series E Perpetual Cumulative Convertible Preferred Stock, par value $0.04 per share (the “Series E Preferred Stock”), shown opposite such Purchaser’s name on Schedule 1, for an aggregate purchase price (the “Purchase Price”) to be paid by such Purchaser in the amount shown opposite such Purchaser’s name on Schedule 1. The shares of the Issuer’s common stock, par value $0.04 per share (the “Common Stock”), that may be issued upon conversion of the Series E Preferred Stock as contemplated by the Designations Certificate (as defined below) are referred to herein as the “Converted Shares”, and the Series E Preferred Stock and the Converted Shares are collectively referred to herein as the “Securities”.

2. Closing. Subject to the satisfaction or waiver of the conditions in this Agreement, the purchase and sale of the Series E Preferred Stock shall take place at the offices of the Issuer at 3700 Buffalo Speedway, Suite 960, Houston, Texas 77098, at 10:00 a.m. (local time), on May 17, 2007, or at such other time and place as the Issuer and the Purchasers acquiring, in the aggregate, a majority of the shares of Series E Preferred Stock to be sold pursuant to this Agreement agree upon orally or in writing (which time and date are designated as the “Closing”). At the Closing, the Issuer shall deliver to each Purchaser a certificate representing the shares of Series E Preferred Stock that such Purchaser is purchasing in the name and to the address specified by each Purchaser on Schedule 1 against payment of the Purchase Price therefor by wire transfer of immediately available funds.

3. Purchasers’ Representations and Warranties. Each Purchaser hereby represents and warrants to the Issuer that:

3.1 Investment Intent. Such Purchaser is acquiring the Securities solely for the Purchaser’s own account for investment purposes, and not with a view to, or for offer or sale in connection with, any distribution of the Securities in violation of the Securities Act of 1933, as amended (the “Securities Act”). By such representation, such Purchaser means that no other person has a beneficial interest in the Securities, and that no other person has furnished or will furnish directly or indirectly, any part of or guarantee the payment of any part of the consideration to be paid by such Purchaser to the Issuer in connection therewith. Such Purchaser

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does not intend to dispose of all or any part of the Securities except in compliance with the provisions of the Securities Act and applicable state securities laws, and understands that the Securities are being offered pursuant to a specific exemption under the provisions of the Securities Act, which exemption(s) depends, among other things, upon compliance with the provisions of the Securities Act.

3.2 Access to Information. Such Purchaser has received a copy of the Issuer’s annual report on Form 10-K for the year ended June 30, 2006 (the “Annual Report”) and quarterly report on Form 10-Q for the quarter ended March 31, 2007 (the “Quarterly Report”) and has reviewed them carefully, including the risk factors set forth therein. In addition, the Purchaser has received and reviewed a copy of the Issuer’s proxy statement for its annual meeting of stockholders held on November 17, 2006 (the “Proxy Statement”). If desired, the Purchaser has also sought and obtained from management of the Issuer such additional information concerning the business, management and financial affairs of the Issuer as the Purchaser has deemed necessary or appropriate in evaluating an investment in the Issuer and determining whether or not to purchase the Securities.

3.3 Accredited Investor. By completing the Accredited Investor Certification attached as Exhibit A, such Purchaser represents and warrants that it is an accredited investor, as defined by Rule 501(a) of Regulation D under the Securities Act.

3.4 Knowledge and Experience. Such Purchaser is experienced in evaluating and investing in the securities of businesses in the development stage, and has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of an investment in the Securities and of protecting its interests in connection with an acquisition of the Securities.

3.5 Suitability. Such Purchaser has carefully considered, and has, to the extent the Purchaser deems it necessary, discussed with the Purchaser’s own professional legal, tax and financial advisers the suitability of an investment in the Securities for the Purchaser’s particular tax and financial situation, and the Purchaser has determined that the Securities are a suitable investment for the Purchaser.

3.6 Ability to Bear Risk of Loss. Such Purchaser is financially able to hold the Securities subject to restrictions on transfer for an indefinite period of time, and is capable of bearing the economic risk of losing up to the entire amount of its investment in the Securities.

3.7 Non-Registered Securities. Such Purchaser acknowledges that the offer and sale of the Securities have not been registered under the Securities Act or any state securities laws and the Securities may be resold only if registered pursuant to the provisions thereunder or if an exemption from registration is available. Such Purchaser understands that the offer and sale of the Securities is intended to be exempt from registration under the Securities Act, based, in part, upon the representations, warranties and agreements of such Purchaser contained in this Agreement.

3.8 Truth and Accuracy. All representations and warranties made by such Purchaser in this Agreement are true and accurate as of the date hereof and shall be true and

2

accurate as of the date the Issuer issues the Securities. If at any time prior to the issuance of the Securities any representation or warranty shall not be true and accurate in any respect, such Purchaser shall so notify the Issuer.

3.9 Authority. The individual(s) executing and delivering this Agreement on behalf of such Purchaser have been duly authorized to execute and deliver this Agreement on behalf of such Purchaser, the signature of such individual(s) is binding upon such Purchaser, such Purchaser is duly organized and subsisting under the laws of the jurisdiction in which it was organized, and such Purchaser was not formed for the specific purpose of acquiring the Securities.

3.10 No Violation. The execution and delivery of this Agreement and the consummation of the transactions or performance of the obligations contemplated by this Agreement do not and will not violate any term of such Purchaser’s organizational documents.

3.11 Enforceability. Such Purchaser has duly executed and delivered this Agreement and (subject to its execution by the Issuer) it constitutes a valid and binding agreement of such Purchaser enforceable in accordance with its terms against such Purchaser, except as such enforceability may be limited by principles of public policy, and subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies.

3.12 Reliance on Own Advisers. In connection with such Purchaser’s investment in the Securities, such Purchaser has not relied upon the Issuer or its advisers for legal or tax advice, and has, if desired, in all cases sought the advice of such Purchaser’s own legal counsel and tax advisers.

3.13 Scope of Business. Such Purchaser has been advised and understands that the Issuer will be exposed to numerous investment opportunities in all areas of the oil and gas industry and may therefore pursue various types of transactions and opportunities, even if they do not fit within the primary focus of the Issuer’s current business plan. For example, such transactions could include sales of all or substantially all of the Issuer’s assets and such opportunities could include international investments and downstream investments in oil and gas service companies, pipelines, and gas processing and gas storage facilities.

3.14 Brokers or Finders. Such Purchaser has not dealt with any broker or finder other than Energy Capital Solutions LLC and Pritchard Capital Partners, LLC in connection with the transactions contemplated by the Agreement, and has not incurred, and shall not incur, directly or indirectly, any liability for any brokerage or finders’ fees or agents commissions or any similar charges in connection with the transactions contemplated by the Agreement.

3.15 Short Sales. As of the date of this Agreement, such Purchaser and its affiliates do not have, to Purchaser’s knowledge, and during the 30 day period prior to the date of this Agreement such Purchaser and its affiliates, to Purchaser’s knowledge, have not entered into, any “put equivalent position” as such term is defined in Rule 16a-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or short sale positions with respect to

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the Common Stock of the Issuer. Until the registration statement referred to in Section 8.1 is declared effective, the Purchaser hereby agrees not to enter into any such “put equivalent position” or short sale position.

4. Issuer’s Representations and Warranties. The Issuer hereby represents and warrants to the Purchasers that:

4.1 Corporate Existence; Authority. The Issuer is a corporation duly organized, validly existing and in good standing under the laws of Delaware, and it has all requisite power and authority to carry on its business as it is being conducted. The individual executing and delivering this Agreement on behalf of the Issuer has been duly authorized to execute and deliver this Agreement on behalf of the Issuer, and the signature of such individual is binding upon the Issuer.

4.2 Enforceability. The Issuer has duly executed and delivered this Agreement and (subject to its execution by the Purchasers) it constitutes a valid and binding agreement of the Issuer enforceable in accordance with its terms against the Issuer, except as such enforceability may be limited by principles of public policy, and subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies.

4.3 Capitalization. The authorized capital of the Issuer consists, or will consist immediately prior to the Closing, of:

(a) Preferred Stock. 5,000,000 shares of Preferred Stock, par value $0.04 per share, of which 10,000 shares have been designated Series E Preferred Stock, none of which are issued and outstanding and up to 6,000 shares of which will be sold pursuant to this Agreement.

(b) Common Stock. 50,000,000 shares of Common Stock of which 15,952,807 shares were issued and outstanding as of May 4, 2007.

(c) All of the outstanding shares of Common Stock of the Issuer have been duly and validly issued and are fully paid, non-assessable and not subject to any preemptive or similar rights. The Series E Preferred Stock has been duly authorized and when issued and delivered to the Purchasers against payment therefor as provided by this Agreement, will be validly issued, fully paid and non-assessable, shall have the rights and preferences set forth in the Certificate of Designations of Series E Preferred Stock attached hereto as Exhibit B (the “Designations Certificate”) and the issuance of such Series E Preferred Stock will not be subject to any preemptive or similar rights. If and when issued, the Converted Shares will have been duly authorized, reserved for issuance and, when issued and delivered to the Purchasers against payment therefor as provided by herein, will be validly issued, fully paid and non-assessable, and the issuance of such Converted Shares will not be subject to any preemptive or similar rights.

(d) Prior to giving effect to the transactions set forth herein, there are no outstanding subscriptions, options, warrants, convertible securities, calls, commitments, agreements or rights to purchase or otherwise acquire from the Issuer any shares of, or any securities convertible into, the capital stock of the Issuer except as set forth on Schedule 4.3(d).

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(e) Except as set forth on Schedule 4.3(e), no stockholders of the Issuer have any right to require the registration of any securities of the Issuer or to participate in any such registration.

4.4 No Conflicts. The issuance and sale of the Securities to the Purchasers as contemplated hereby and the performance of this Agreement will not violate or conflict with the Issuer’s Certificate of Incorporation or Bylaws or any agreements to which the Issuer is a party or by which it is otherwise bound or, to the Issuer’s knowledge, any statute, rule or regulation (federal, state, local or foreign) to which it is subject.

4.5 SEC Documents. The Issuer has provided the Annual Report, the Quarterly Report and the Proxy Statement to the Purchasers. As of the date hereof, the Annual Report, the Quarterly Report and the Proxy Statement do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Issuer included in the Annual Report and the Quarterly Report financial statements dated as of March 31, 2007 heretofore delivered to the Purchasers, have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present the financial position of the Issuer as of the dates thereof and the results of its operations and cash flows for the periods then ended. The Issuer has included in the Annual Report a list of all material agreements, contracts and other documents that it reasonably believes are required to be filed as exhibits to the Annual Report.

4.6 Litigation. There is no litigation or other legal, administrative or governmental proceeding pending or, to the knowledge of the Issuer, threatened against or relating to the Issuer or its properties or business, that if determined adversely to the Issuer may reasonably be expected to have a material adverse effect on the present or future operations or financial condition of the Issuer.

4.7 No Material Adverse Change. Since the date of the Quarterly Report, there has not been any material adverse change in the business, operations, properties, prospects, assets, or condition of the Issuer, and no event has occurred or circumstance exists that may result in such a material adverse change.

4.8 Environmental Matters.

(a) Except as would not be reasonably likely to have a material adverse effect change in the business, operations, properties, prospects, assets, or condition of the Issuer: (i) to Issuer’s knowledge, Issuer has complied with all applicable Environmental Laws (as defined in Section 4.8(b)); (ii) to Issuer’s knowledge, Issuer is not subject to liability for any Hazardous Substance disposal or contamination on any third party property; (iii) to Issuer’s knowledge, Issuer has not been associated with any release or threat of release of any Hazardous Substance; (v) Issuer has not received any notice, demand, letter, claim or request for information alleging that Issuer may be in violation of or liable under any Environmental Law; (vi) Issuer is not subject to any orders, decrees, injunctions or other arrangements with any governmental entity or is subject to any indemnity or other agreement with any third party

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relating to liability under any Environmental Law or relating to Hazardous Substances; and (vii) there are no circumstances or conditions involving Issuer that could reasonably be expected to result in any claims, liability, investigations, costs or restrictions on the ownership, use or transfer of any property of Issuer pursuant to any Environmental Law.

(b) For purposes of this Agreement, the term “Environmental Law” means any federal, state, local or foreign law, regulation, order, decree, permit, authorization, opinion, common law or agency requirement relating to: (A) the protection, investigation or restoration of the environment, health and safety, or natural resources, (B) the handling, use, presence, disposal, release or threatened release of any Hazardous Substance or (C) noise, odor, wetlands, pollution, contamination or any injury or threat of injury to persons or property.

(c) For purposes of this Agreement, the term “Hazardous Substance” means any substance that is: (A) listed, classified or regulated pursuant to any Environmental Law; (B) any petroleum product or by-product, asbestos-containing material, lead-containing paint or plumbing, polychlorinated biphenyls, radioactive materials or radon; or (C) any other substance which is the subject of regulatory action by any governmental entity pursuant to any Environmental Law.

4.9 Truth and Accuracy. All representations and warranties made by the Issuer in this Agreement are true and accurate as of the date hereof and shall be true and accurate as of the date the Issuer issues the Securities. If at any time prior to the issuance of any of the Securities any representation or warranty shall not be true and accurate in any respect, the Issuer shall so notify the Purchasers.

4.10 Compliance with Laws, Other Instruments. The execution, delivery and performance by the Issuer of this agreement will not (a) contravene, result in any breach of, or constitute a default under or result in the creation of any lien in respect of any property of the Issuer under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or bylaws, or any other material agreement or instrument to which the Issuer is bound or by which the Issuer or any of its respective properties may be bound or affected, (b) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or governmental authority applicable to the Issuer or (c) violate any provision of any statute or other rule or regulation of any governmental authority applicable to the Issuer.

4.11 Observance of Agreements, Statutes and Orders. The Issuer is not in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or governmental authority or is in violation of any applicable law, ordinance, rule or regulation (including without limitation environmental laws) of any governmental authority which default or violation could have a material adverse effect upon the business or operations of the Issuer.

4.12 Brokers or Finders. Except for Energy Capital Solutions LLC and Pritchard Capital Partners, LLC (which has acted as a finder for the transactions contemplated by the Agreement), the Issuer has not dealt with any broker or finder in connection with the transactions contemplated by the Agreement, and except for certain fees and expenses payable

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by the Issuer to Energy Capital Solutions LLC and Pritchard Capital Partners, LLC, the Issuer has not incurred, and shall not incur, directly or indirectly, any liability for any brokerage of finders’ fees or agents commissions or any similar charges in connection with the transactions contemplated by the Agreement.

5. Conditions of Purchasers’ Obligations at Closing. The obligations of each Purchaser under Section 1 and Section 2 are subject to the fulfillment on or before the Closing of each of the following conditions, the waiver of which shall not be effective against any Purchaser who does not consent in writing to such waiver:

5.1 Representations and Warranties. The representations and warranties of the Issuer contained in Section 4 shall be true and correct on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of such Closing (other than representations and warranties that relate only to a certain date, which shall be true as of such date).

5.2 Performance. The Issuer shall have performed and complied with the covenants and agreements in this Agreement that are required to be performed or complied with by it on or before the Closing.

5.3 Proceedings and Documents. All corporate and other proceedings in connection with the Agreement contemplated to be effected at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to Purchasers’ counsel, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request.

5.4 Opinion of Issuer Counsel. Each Purchaser shall have received from Morgan, Lewis & Bockius LLP, counsel for the Issuer, an opinion, dated as of the Closing, substantially in the form of Exhibit C.

5.5 Reservation of Converted Shares. The Converted Shares issuable upon conversion of the Series E Preferred Stock shall have been duly authorized and reserved for issuance upon such conversion.

5.6 Consents, Permits, and Waivers. The Issuer shall have obtained any and all consents, permits and waivers necessary or appropriate for consummation of the transactions contemplated by the Agreement.

5.7 Secretary’s Certificate. Purchasers shall have received from the Issuer’s Secretary or Assistant Secretary, a certificate having attached thereto (i) the Certificate of Incorporation as in effect at the time of the Closing, (ii) the Issuer’s Bylaws as in effect at the time of the Closing, (iii) resolutions approved by the Board of Directors authorizing the transactions contemplated hereby, and (iv) good standing certificates (including tax good standing) with respect to the Issuer from the applicable authorities in Delaware and Texas.

6. Conditions of the Issuer’s Obligations at Closing. The obligations of the Issuer to each Purchaser under this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions:

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6.1 Representations and Warranties. The representations and warranties of the Purchaser contained in Section 3 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing.

6.2 Payment of Purchase Price. Such Purchaser shall have delivered the Purchase Price specified in Section 1, and the Purchasers shall have delivered Purchase Prices equal to at least $40 million in aggregate principal amount.

6.3 Qualifications. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities pursuant to this Agreement shall be duly obtained and effective as of the Closing.

7. Restrictions on Transfer.

7.1 Resale Restrictions. The Purchasers understand that the offer and sale of the Securities to the Purchasers have not been registered under the Securities Act or under any state laws. Each Purchaser agrees not to offer, sell or otherwise transfer the Securities, or any interest in the Securities, unless (i) the offer and sale is registered under the Securities Act, (ii) the Securities may be sold in accordance with the applicable requirements and limitations of Rule 144 under the Securities Act and any applicable state laws and, if the Issuer reasonably requests, such Purchaser delivers to the Issuer an opinion of counsel to such effect, or (iii) such Purchaser delivers to the Issuer an opinion of counsel reasonably satisfactory to the Issuer that the offer and sale is otherwise exempt from Securities Act registration. Notwithstanding the foregoing subsections (ii) and (iii), no opinion shall be required for transfers by a Purchaser to its affiliates.

7.2 Restrictive Legend. Each Purchaser understands and agrees that a legend in substantially the following form will be placed on the certificates or other documents representing the Securities:

“THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS (i) THE OFFER AND SALE IS REGISTERED UNDER THE SECURITIES ACT, OR (ii) THE OFFER AND SALE IS EXEMPT FROM SECURITIES ACT REGISTRATION AND THE TERMS OF SECTION 7.1 OF THE SECURITIES PURCHASE AGREEMENT PURSUANT TO WHICH THE SECURITIES WERE ORIGINALLY PURCHASED HAVE BEEN COMPLIED WITH. (A COPY OF THE SECURITIES PURCHASE AGREEMENT IS ON FILE AT THE CORPORATE OFFICE OF THE CORPORATION.)”

7.3 Illiquid Investment. Each Purchaser acknowledges that it must bear the economic risk of its investment in the Securities for an indefinite period of time, until such time as the Securities are registered or an exemption from registration is available. Each Purchaser

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acknowledges that the soonest that the Rule 144 exemption from registration could become available would be after such Purchaser has paid for and held the Securities for one year.

8. Registration of the Converted Shares; Compliance with the Securities Act.

8.1 Registration Procedures and Other Matters. The Issuer shall:

(a) subject to receipt of necessary information from the Purchasers after prompt request from the Issuer to the Purchasers to provide such information, promptly following the Closing but no later than 60 days after the Closing (the “Filing Date”), prepare and file with the Securities and Exchange Commission (the “SEC”) a registration statement on Form S-3 or such other successor form (except that if the Issuer is not then eligible to register for resale the Converted Shares on Form S-3, in which case such registration shall be on Form S-1 or any successor form) (a “Registration Statement”) to enable the resale of the Converted Shares, by the Purchasers or their transferees from time to time over the American Stock Exchange or in privately-negotiated transactions. No Purchaser may include any Converted Share in the Registration Statement pursuant to this Agreement unless such Purchaser furnishes to the Issuer in writing within five business days after receipt of request therefor, such requested information;

(b) use commercially reasonable efforts, subject to receipt of necessary information from the Purchasers after prompt request from the Issuer to the Purchasers to provide such information, to cause the Registration Statement to become effective as soon as practicable;

(c) use its commercially reasonable efforts to cause such Registration Statement to remain continuously effective and prepare and file with the SEC such amendments and supplements to the Registration Statement and the prospectus used in connection therewith (the “Prospectus”) (and the applicable Exchange Act reports incorporated therein by reference, so filed on a timely basis) as may be necessary to keep the Registration Statement current, effective and free from any material misstatement or omission to state a material fact for a period ending on the date that is, with respect to each Purchaser’s Converted Shares purchased hereunder, the earlier of (i) the date on which the Purchaser may sell all Converted Shares then held by the Purchaser without restriction under Rule 144(k), or (ii) such time as all Converted Shares purchased by such Purchaser in this Offering have been sold pursuant to a registration statement;

(d) so long as a Purchaser holds Converted Shares, provide copies to and permit single legal counsel designated by the Purchasers to review the Registration Statement and all amendments and supplements thereto, no fewer than three business days prior to their filing with the SEC, and not file any Registration Statement, amendment or supplement thereto to which a holder of the Converted Shares reasonably objects in writing within such three business day period;

(e) furnish to the Purchasers with respect to the Converted Shares registered under the Registration Statement such number of copies of the Registration Statement, Prospectuses and preliminary Prospectuses (“Preliminary Prospectuses” and individually, “Preliminary Prospectus”) in conformity with the requirements of the Securities Act and such

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other documents as the Purchasers may reasonably request, in order to facilitate the public sale or other disposition of all or any of the Converted Shares by the Purchasers; provided, however, that the obligation of the Issuer to deliver copies of Prospectuses or Preliminary Prospectuses to the Purchasers shall be subject to the receipt by the Issuer of reasonable assurances from the Purchasers that the Purchasers will comply with the applicable prospectus delivery requirements under the Securities Act and of such other securities or blue sky laws as may be applicable in connection with any use of such Prospectuses or Preliminary Prospectuses;

(f) file documents required of the Issuer for normal blue sky clearance in states specified in writing by the Purchasers and use its commercially reasonable efforts to maintain such blue sky qualifications during the period the Issuer is required to maintain the effectiveness of the Registration Statement pursuant to Section 8.1(b); provided, however, that the Issuer shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented;

(g) promptly notify the Purchasers after it receives notice of the time when the Registration Statement has been declared effective by the SEC, or when a supplement or amendment to any Registration Statement has been filed with the SEC; and

(h) advise the Purchasers, promptly: (a) after it shall receive notice or obtain knowledge of the issuance of any stop order by the SEC delaying or suspending the effectiveness of the Registration Statement or of the initiation or threat of any proceeding for that purpose; and it will promptly use its commercially reasonable efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued; and (b) at any time when a Prospectus relating to Converted Shares is required to be delivered under the Securities Act, upon discovery that, or upon the happening of an event as a result of which, the Prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing.

8.2 Transfer of Shares After Registration; Suspension.

(a) Each Purchaser agrees that it will not effect any disposition of the Converted Shares that would constitute a sale within the meaning of the Securities Act except as contemplated in the Registration Statement referred to in Section 8.1 and as described below or as otherwise permitted by law, and that it will promptly notify the Issuer in writing of any changes in the information set forth in the Registration Statement regarding the Purchaser or its plan of distribution.

(b) Except in the event that paragraph (c) below applies, the Issuer shall (i) if deemed necessary by the Issuer, prepare and file from time to time with the SEC a post-effective amendment to the Registration Statement or a supplement to the related Prospectus or a supplement or amendment to any document incorporated therein by reference or file any other required document so that such Registration Statement will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not

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misleading, and so that, as thereafter delivered to purchasers of the Converted Shares being sold thereunder, such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, (ii) provide the Purchasers copies of any documents filed pursuant to Section 8.2(b)(i), and (iii) inform each Purchaser that the Issuer has complied with its obligations in Section 8.2(b)(i) (or that, if the Issuer has filed a post-effective amendment to the Registration Statement which has not yet been declared effective, the Issuer will notify the Purchasers to that effect, will use its commercially reasonable efforts to secure the effectiveness of such post-effective amendment as promptly as possible and will promptly notify the Purchaser pursuant to Section 8.2(b)(i) hereof when the amendment has become effective).

(c) In the event (i) of any request by the SEC or any other federal or state governmental authority during the period of effectiveness of the Registration Statement for amendments or supplements to a Registration Statement or related Prospectus or for additional information; (ii) of the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose; (iii) of the receipt by the Issuer of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Converted Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; or (iv) of any event or circumstance which, upon the advice of its counsel, necessitates the making of any changes in the Registration Statement or Prospectus, or any document incorporated or deemed to be incorporated therein by reference, so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, then the Issuer shall promptly deliver a certificate in writing to the Purchasers (the “Suspension Notice”) to the effect of the foregoing and, upon receipt of such Suspension Notice, the Purchasers will refrain from selling any Converted Shares pursuant to the Registration Statement (a “Suspension”) until the Purchasers’ receipt of copies of a supplemented or amended Prospectus prepared and filed by the Issuer, or until the Purchasers are advised in writing by the Issuer that the current Prospectus may be used, and have received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in any such Prospectus. In the event of any Suspension, the Issuer will use its commercially reasonable efforts to cause the use of the Prospectus so suspended to be resumed as promptly as possible after the delivery of a Suspension Notice to the Purchasers.

(d) Provided that a Suspension is not then in effect, the Purchasers may sell Converted Shares under the Registration Statement in the manner set forth under the caption “Plan of Distribution” in the Prospectus, provided that each arranges for delivery of a current Prospectus to the transferee of such Converted Shares. Upon receipt of a request therefor, the Issuer has agreed to provide an adequate number of current Prospectuses to the Purchasers and to supply copies to any other parties requiring such Prospectuses.

8.3 Indemnification. For the purpose of this Section 8.3:

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(i) the term “Selling Stockholder” shall include the Purchasers and their respective affiliates;

(ii) the term “Registration Statement” shall include the Prospectus in the form first filed with the SEC pursuant to Rule 424(b) of the Securities Act or filed as part of the Registration Statement at the time of effectiveness if no Rule 424(b) filing is required, any exhibit, supplement or amendment included in or relating to the Registration Statement referred to in Section 8.1; and

(iii) the term “untrue statement” shall include any untrue statement or alleged untrue statement of a material fact in the Registration Statement, or any omission or alleged omission to state in the Registration Statement a material fact required to be stated therein or necessary to make the statements therein not misleading.

(a) The Issuer agrees to indemnify and hold harmless each Selling Stockholder and its officers, directors, members and their respective successors and assigns (collectively, the “Selling Stockholder Indemnified Parties”) from and against any third party losses, claims, damages or liabilities to which such Selling Stockholder Indemnified Parties may become subject (under the Securities Act or otherwise) insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon (i) any breach of the representations or warranties of the Issuer contained herein, or failure to comply with the covenants and agreements of the Issuer contained herein, (ii) any untrue statement of a material fact contained in the Registration Statement as amended at the time of effectiveness or any omission of a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or (iii) any failure by the Issuer to fulfill any undertaking included in the Registration Statement as amended at the time of effectiveness, and the Issuer will reimburse such Selling Stockholder Indemnified Parties for any reasonable legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim, provided, however, that the Issuer shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of, or is based upon, an untrue statement made in such Registration Statement or any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading in reliance upon and in conformity with written information furnished to the Issuer by or on behalf of such Selling Stockholder Indemnified Parties specifically for use in preparation of the Registration Statement, a breach of any representations or warranties made by such Selling Stockholder herein, or the failure of such Selling Stockholder Indemnified Parties to comply with its covenants and agreements contained in this Agreement hereof or any statement or omission in any Prospectus that is corrected in any subsequent Prospectus that was delivered to the Selling Stockholder Indemnified Party prior to the pertinent sale or sales by the Selling Stockholder Indemnified Party. The Issuer shall reimburse each Selling Stockholder Indemnified Party for the amounts provided for herein on demand as such expenses are incurred.

(b) Each Purchaser agrees to indemnify and hold harmless the Issuer (and each person, if any, who controls the Issuer within the meaning of Section 15 of the Securities Act, each officer of the Issuer who signs the Registration Statement and each director of the Issuer) from and against any third party losses, claims, damages or liabilities to which the Issuer (or any such officer, director or controlling person) may become subject (under the

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Securities Act or otherwise), insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon, (i) any breach of the representations and warranties of such Purchaser contained herein, (ii) any failure to comply with the covenants and agreements of such Purchaser contained herein, or (iii) any untrue statement of a material fact contained in the Registration Statement or any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading if such untrue statement or omission was made in reliance upon and in conformity with written information furnished by or on behalf of such Purchaser specifically for use in preparation of the Registration Statement, and such Purchaser will reimburse the Issuer (or such officer, director or controlling person), as the case maybe, for any reasonable legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim; provided, however, that such Purchaser’s obligation to indemnify the Issuer or any other persons hereunder shall be limited to the amount by which the net amount received by such Purchaser from the sale of the Converted Shares to which such loss relates exceeds the amount of any damages which such Purchaser has otherwise been required to pay by reason of such untrue statement or omission, provided further that, with respect to any indemnification obligation arising under clause (iii) of this paragraph (b), such obligation shall be limited to the net amount received by such Purchaser from the sale of the Converted Shares included in the Registration Statement in question.

(c) Promptly after receipt by any indemnified person of a notice of a claim or the beginning of any action in respect of which indemnity is to be sought against an indemnifying person pursuant to this Section 8.3, such indemnified person shall notify the indemnifying person in writing of such claim or of the commencement of such action, but the omission to so notify the indemnifying person will not relieve it from any liability which it may have to any indemnified person under this Section 8.3 (except to the extent that such omission materially and adversely affects the indemnifying person’s ability to defend such action) or from any liability otherwise than under this Section 8.3. Subject to the provisions hereinafter stated, in case any such action shall be brought against an indemnified person, the indemnifying person shall be entitled to participate therein, and, to the extent that it shall elect by written notice delivered to the indemnified person promptly after receiving the aforesaid notice from such indemnified person, shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to such indemnified person. After notice from the indemnifying person to such indemnified person of its election to assume the defense thereof, such indemnifying person shall not be liable to such indemnified person for any legal expenses subsequently incurred by such indemnified person in connection with the defense thereof, provided, however, that if there exists or shall exist a conflict of interest that would make it inappropriate, in the opinion of counsel to the indemnified person, for the same counsel to represent both the indemnified person and such indemnifying person or any affiliate or associate thereof, the indemnified person shall be entitled to retain its own counsel at the expense of such indemnifying person; provided, however, that no indemnifying person shall be responsible for the fees and expenses of more than one separate counsel (together with appropriate local counsel) for all indemnified parties. In no event shall any indemnifying person be liable in respect of any amounts paid in settlement of any action unless the indemnifying person shall have approved the terms of such settlement; provided that such consent shall not be unreasonably withheld. No indemnifying person shall, without the prior written consent of the indemnified person, effect any settlement of any pending or threatened proceeding in respect of which any indemnified person is or could have been a party

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and indemnification could have been sought hereunder by such indemnified person, unless such settlement includes an unconditional release of such indemnified person from all liability on claims that are the subject matter of such proceeding.

(d) If the indemnification provided for in this Section 8.3 is unavailable to or insufficient to hold harmless an indemnified person under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each indemnifying person shall contribute to the amount paid or payable by such indemnified person as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Issuer on the one hand and the Purchaser(s) on the other in connection with the statements or omissions or other matters which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, in the case of an untrue statement, whether the untrue statement relates to information supplied by the Issuer on the one hand or the Purchaser(s) on the other and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement. The Issuer and the Purchasers agree that it would not be just and equitable if contribution pursuant to this subsection (d) were determined by pro rata allocation (even if the Purchasers were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to above in this subsection (d). The amount paid or payable by an indemnified person as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), a Purchaser shall not be required to contribute any amount in excess of the amount by which the net amount received by such Purchaser from the sale of the Converted Shares to which such loss relates exceeds the amount of any damages which such Purchaser has otherwise been required to pay by reason of such untrue statement. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Each Purchaser’s obligations in this subsection to contribute shall be in proportion to its sale of Converted Shares to which such loss relates and shall not be joint with any other Selling Stockholders.

(e) The parties to this Agreement hereby acknowledge that they are sophisticated business persons who were represented by counsel during the negotiations regarding the provisions hereof including, without limitation, the provisions of this Section 8.3, and are fully informed regarding said provisions. They further acknowledge that the provisions of this Section 8.3 fairly allocate the risks in light of the ability of the parties to investigate the Issuer and its business in order to assure that adequate disclosure is made in the Registration Statement as required by the Securities Act. The parties are advised that federal or state public policy as interpreted by the courts in certain jurisdictions may be contrary to certain of the provisions of this Section 8.3, and the parties hereto hereby expressly waive and relinquish any right or ability to assert such public policy as a defense to a claim under this Section 8.3 and further agree not to attempt to assert any such defense.

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8.4 Termination of Conditions and Obligations. The conditions precedent imposed by this Agreement upon the transferability of the Converted Shares, shall cease and terminate as to any particular Converted Shares when such Converted Shares shall have been effectively registered under the Securities Act and sold or otherwise disposed of in accordance with the intended method of disposition set forth in the Registration Statement covering the Converted Shares or at such time as an opinion of counsel reasonably satisfactory to the Issuer shall have been rendered to the effect that such conditions are not necessary in order to comply with the Securities Act.

9. Notices. All notices, requests, consents and other communications hereunder shall be in writing, shall be mailed (A) if within the United States by first-class registered or certified airmail, or nationally recognized overnight express courier, postage prepaid, or by facsimile, or (B) if delivered from outside the United States, by International Federal Express or facsimile, and shall be deemed given (i) if delivered by first-class registered or certified mail, three business days after so mailed, (ii) if delivered by nationally recognized overnight carrier, one business day after so mailed, (iii) if delivered by International Federal Express, two business days after so mailed, (iv) if delivered by facsimile, upon electronic confirmation of receipt and shall be delivered as addressed as follows:

(a) if to the Issuer, to:

Contango Oil & Gas Company

3700 Buffalo Speedway, Suite 960

Houston, TX 77098

Tel: (713) 960-1901

Fax: (713) 960-1065

(b) With a copy to:

Morgan, Lewis & Bockius LLP

300 S. Grand Avenue, Suite 2200

Los Angeles, CA 90071

Attn: Richard A. Shortz

Tel: (213) 612-2526

Fax: (213) 612-2554

(c) if to a Purchaser, at its address on Schedule 1

attached hereto, or at such other address or

addresses as may have been furnished to the Issuer

in writing

(d) with a copy to:

Energy Capital Solutions, LLC

2651 North Harwood

410 Rolex Bldg.

Dallas, TX 75201

15

and

Patton Boggs LLP

2001 Ross Avenue, Suite 3000

Dallas, TX 75201

Attn: Fred A. Stovall

Tel: (214) 758-1500

Fax: (214) 758-1550

10. Reliance. Each Purchaser and the Issuer understand and agree that the other party and its respective officers, directors, employees and agents may, and will, rely on the accuracy of the other party’s respective representations and warranties in this Agreement to establish compliance with applicable securities laws. Each Purchaser and the Issuer agree to indemnify and hold harmless all such parties against all losses, claims, costs, expenses and damages or liabilities which they may suffer or incur caused or arising from their reliance on such representations and warranties; provided, however, that the indemnification provided by each Purchaser pursuant to this Section 10 shall be limited to the Purchase Price paid by such Purchaser pursuant to this Agreement.

11. Miscellaneous.

11.1 Survival. The representations and warranties made in this Agreement shall survive the closing of the transactions contemplated by this Agreement.

11.2 Assignment. This Agreement is not transferable or assignable, except that this Agreement shall be transferable by a Purchaser to its affiliates.

11.3 Execution and Delivery of Agreement. The Issuer shall be entitled to rely on delivery by facsimile transmission of an executed copy of this Agreement, and acceptance by the Issuer of such facsimile copy shall create a valid and binding agreement between the Purchaser and the Issuer.

11.4 Titles. The titles of the sections and subsections of this Agreement are for the convenience of reference only and are not to be considered in construing this Agreement.

11.5 Severability. The invalidity or unenforceability of any particular provision of this Agreement shall not affect or limit the validity or enforceability of the remaining provisions of this Agreement.

11.6 Entire Agreement. This Agreement constitutes the entire agreement and understanding between the parties with respect to the subject matters herein and supersedes and replaces any prior agreements and understandings, whether oral or written, between them with respect to such matters.

11.7 Waiver and Amendment. Except as otherwise provided herein, the provisions of this Agreement may be waived, altered, amended or repealed, in whole or in part, only upon the mutual written agreement of the Issuer and Purchasers acquiring in the aggregate a majority of the Series E Preferred Stock purchased pursuant to this Agreement.

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11.8 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument.

11.9 Governing Law. This Agreement is governed by and shall be construed in accordance with the laws of the State of Delaware.

11.10 Attorney’s Fees. In any action or proceeding brought to enforce any provision of this Agreement, or where any provision hereof is validly asserted as a defense, the successful party shall be entitled to recover reasonable attorney’s fees (including any fees incurred in any appeal) in addition to its costs and expenses and any other available remedy.

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above mentioned.

ISSUER:
CONTANGO OIL & GAS COMPANY
By:	/s/ KENNETH R. PEAK
Name:	Kenneth R. Peak
Title:	Chairman and Chief Executive Officer

[Signature Page to Series E Securities Purchase Agreement]

PURCHASER:
RCH Energy Opportunity Fund II, L.P.
By:	/s/ ROBERT RAYMOND
Name:	Robert Raymond
Title:	Sole-Member

[Signature Page to Series E Securities Purchase Agreement]

PURCHASER:
The Northwestern Mutual Life Insurance Company
By:	/s/ JEROME R. BALER
Name:	Jerome R. Baler
Title:	Its Authorized Representative

[Signature Page to Series E Securities Purchase Agreement]

PURCHASER:
Palo Alto Global Energy Master Fund, L.P.
By:	/s/ MARK R. SHAMIA
Name:	Mark R. Shamia
Title:	Chief Operating Officer

[Signature Page to Series E Securities Purchase Agreement]

PURCHASER:
West Coast Opportunity Fund, LLC
By:	/s/ ATTICUS LOWE
Name:	Atticus Lowe
Title:	Chief Investment Officer

[Signature Page to Series E Securities Purchase Agreement]

PURCHASER:
Ironman Energy Fund, LP
By:	/s/ G. BRYAN DUTT
Name:	G. Bryan Dutt
Title:	Managing Director

[Signature Page to Series E Securities Purchase Agreement]

PURCHASER:
BlackGold Capital Partners (QP) LP
By:	/s/ ERIK DUBESLAND
Name:	Erik Dubesland
Title:	Managing Director

[Signature Page to Series E Securities Purchase Agreement]

PURCHASER:
Premium Series PCC Limited
By:	/s/ ERIK DUBESLAND
Name:	Erik Dubesland
Title:	Managing Partner

[Signature Page to Series E Securities Purchase Agreement]

SCHEDULE 1

LIST OF PURCHASERS

Name and Address of Purchaser	Number of Shares of Series E Preferred Stock Purchased	Aggregate Purchase Price
RCH Energy Opportunity Fund II, L.P. 200 Crescent Court, Suite 1060 Dallas, TX 75201	2,000	$	10,000,000
The Northwestern Mutual Life Insurance Company 720 E. Wisconsin Avenue Milwaukee, WI 53202	1,000	$	5,000,000
Palo Alto Global Energy Master Fund, L.P. 470 University Avenue Palo Alto, CA 94301	1,000	$	5,000,000
West Coast Opportunity Fund, LLC 2151 Allessandro Drive, Suite 100 Ventura, CA 93001	1,000	$	5,000,000
Ironman Energy Fund, LP 4545 Bissonnet, Suite 291 Bellaire, TX 77401	600	$	3,000,000
BlackGold Capital Partners (QP) LP 1400 Post Oak Boulevard, Suite 300 Houston, TX 77056	200	$	1,000,000
Premium Series PCC Limited 1400 Post Oak Boulevard, Suite 300 Houston, TX 77056	200	$	1,000,000
TOTAL:	6,000	$	30,000,000

EX-99.1

Exhibit 99.1

CONTANGO OIL & GAS COMPANY

NEWS RELEASE

Contango Issues $30 Million of a Series E Perpetual Preferred Stock

MAY 14, 2007 – HOUSTON, TEXAS – Contango Oil & Gas Company (AMEX:MCF) announced today that it has entered into agreements to sell $30.0 million of its Series E Preferred Stock. The shares will be purchased by a group of private investors, subject to customary closing conditions on May 17, 2007. The Series E Preferred Stock is perpetual and is convertible at any time into shares of Contango common stock at a price of $38.00 per share. The dividend on the Series E Preferred Stock can be paid quarterly in cash at a rate of 6.0% per annum or paid-in-kind at a rate of 7.5% per annum. The Company will file a registration statement covering the common shares underlying the Series E Preferred Stock. Energy Capital Solutions, LP and Pritchard Capital Partners LLC acted as the placement agents for this private placement. The Company’s fully diluted shares after this transaction, assuming the preferred shares are converted into common, and upon the exercise of all outstanding options, would be 17,780,281.

Kenneth R. Peak, Contango’s Chairman and Chief Executive Officer said, “The $28.8 million of net proceeds of this offering will be used to pay off the $15.0 million in debt outstanding from the Company’s $30.0 million term loan agreement, to fund the Company’s offshore Gulf of Mexico deep shelf exploration program and our Arkansas Fayetteville Shale play. Our $13.8 million of cash on hand together with our $30 million of available borrowing capacity under our line of credit leaves us in a strong capital position.”

Contango is a Houston-based, independent natural gas and oil company. The Company’s core business is to explore, develop, produce and acquire natural gas and oil properties primarily offshore in the Gulf of Mexico and onshore in the Arkansas Fayetteville Shale. The Company also owns a 10% interest in a limited partnership formed to develop an LNG receiving terminal in Freeport, Texas, and holds investments in companies focused on commercializing environmentally preferred energy technologies. Additional information can be found on our web page at www.contango.com.

This press release contains forward-looking statements that involve risks and uncertainties, and actual events or results may differ materially from Contango’s expectations. The statements reflect Contango’s current views with respect to future events that involve risks and uncertainties, including those related to successful negotiations with other parties, oil and gas exploration risks, price volatility, production levels, closing of transactions, capital availability, operational and other risks, uncertainties and factors described from time to time in Contango’s publicly available reports filed with the Securities and Exchange Commission.

Contango Oil & Gas Company	For information, contact:
3700 Buffalo Speedway, Suite 960	Kenneth R. Peak
Houston, Texas 77098	(713) 960-1901
www.contango.com