Island Finalizes Seven Heads Agreement

Island Oil and Gas says that, through its wholly owned subsidiary Island (Seven Heads) Limited, it has concluded a Sub-Area Equity Interest Assignment Agreement for the Seven Heads Petroleum Lease, subject to the approval and consent of the Minister, with Marathon International Petroleum Hibernia Limited, through its wholly owned subsidiary Ramco Celtic Sea Limited. Under the terms of this Agreement, Island will drill a well, as part of its three-well drilling program, in April 2006 using the Petrolia drilling rig to test the possible extension of the Seven Heads gas field in an area immediately to the west of the 48/24-6 production well, which to date has encountered some of the best producing gas sands in the Seven Heads gas field.

Island will fund 100% of the cost of the well, including testing, in return for increasing its equity interest in all of the unappraised part of the Seven Heads Petroleum Lease (the "Sub-Area") west of a defined partition line close to the 48/24-6 production well. Island's equity interest in the Sub-Area will increase from 12.5% to 55.75% following the drilling of the well as a result of earning half of RCSL's current interest in the Sub-Area. RCSL shall have the option at any time up to four weeks before the spud date of the well, which, subject to regulatory consents and approvals, is currently anticipated to be on or about 1st April 2006, of increasing its equity interest in the Sub-Area to a maximum of 50% by paying 13.5% of the cost of drilling and testing the well to earn an additional 6.75% interest.

Island will operate the well during the drilling period but operatorship will revert back to RCSL once the drilling program has been completed.

Commenting on the Agreement, Paul Griffiths, Chief Executive of Island, stated:
"We are delighted to be working together with Marathon in Seven Heads. Marathon has an unrivalled history of experience and expertise in producing gas from the Celtic Sea. Island provides complementary technical skills in that it has over the past two years made significant progress towards developing and maturing ready for drilling its portfolio of exploration and appraisal projects in this area. We believe that this will help us to forge a positive and creative working relationship with Marathon going forward. An example of this is the way the companies have cooperated to move quickly to begin to evaluate the potential upside in the Seven Heads gas field by executing an agreement that will facilitate new drilling on Seven Heads utilizing, subject to regulatory consents and approvals, the Petrolia drilling rig, which is currently under contract to Island ".

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