San Antonio, Texas, April 2, 2001 --- South Texas Drilling & Exploration, Inc., San Antonio, today announced that it has completed the acquisition of the drilling assets of privately-held Mustang Drilling, Ltd., Henderson, Texas. The purchase includes four mechanical drilling rigs, a partially completed rig and rolling stock. The Company paid $12 million in cash for the assets.

Michael E. Little, Chairman and CEO, stated that Mustang Drilling is a first rate drilling contractor and provides a new market for South Texas Drilling. Mustang has run an excellent operation in east Texas since 1948 and has maintained a consistently high standard of customer service. Andy Mills, who has managed Mustang since 1993, will run the Company’s east Texas division.

The acquisition increases the Company’s rig fleet to 16 rigs capable of drilling wells in the depth range of 7,000 feet to 18,000 feet. The Company’s rig fleet will increase to 19 with the acquisition of a Cabot 750 scheduled for operation in May, a newly built IRI 1700E scheduled for operation in June and a second newly built IRI 1700E rig scheduled for operation in September.

The Company also announced a private placement of a 4.86% Convertible Subordinated Debenture and an additional $12 million debt facility from an existing lender. The $9 million Debenture matures March 29, 2002 and is convertible into 2.4 million shares of the Company’s common stock at $3.75 per share. Upon conversion, WEDGE Energy Services, L.L.C., the purchaser of the Debenture, will own 49.8% of the Company’s outstanding common stock.

South Texas Drilling & Exploration, Inc. provides land contract drilling services under the name Pioneer Drilling Co., Ltd. to operators drilling wells in central, south and east Texas. The Company’s common stock trades on The American Stock Exchange under the symbol PDC.