Island Oil & Gas Awarded Production License Q13 Offshore Netherlands

Island Oil & Gas

Island Oil & Gas reports that formal transfer documents are currently being completed for the transfer of the Q13 Production License, offshore the Netherlands, to the Company. Effective November 17, 2006, the Minister of Economic Affairs of the Netherlands awarded the Q13 Production License, while in the same Decree approving the transfer of this License to Island, as operator, and Nido Petroleum Limited. Island will initially hold a 100% working interest in the License and, once the agreement for 40% mandatory State Participation through Energie Beheer Nederland B.V. ("EBN") has been completed, a 60% interest in the activities under the License. Upon completion, EBN will pay its share of agreed historical costs plus its share of future expenditure. Upon completion of the transfer of the License, Island will pay Nido a cash consideration of AU$300,000.

The Q13 Production License covers an area of 30 sq. km. and contains the Amstel Field, a Lower Cretaceous field with approximately 7-12 million barrels of gross recoverable reserves (P90 to P10 range). The Amstel Field lies in water depths averaging 60 feet approximately 10 kms. offshore the Dutch coast. It was discovered in 1962 by NAM ("Shell/Esso"). The Field is located within the West Netherlands Basin, a prolific oil and gas province in which, to date, over 1.3 billion barrels of oil-, and 3 tcf of gas-, in place have been encountered. The Amstel Field is on trend with the Dutch offshore Rijn Field and the onshore Wassenaar Field.

Three wells have been drilled in the Q13 License area: Q13-1 was the discovery well, drilled by Shell/Esso in 1962. Wells Q13-8 and Q13-9 were appraisal wells, drilled in the 1990s by PanCanadian. Well Q13-8 flowed at 3,500 barrels of oil per day (bopd) with 1.12 mcf per day of associated gas. The other wells were not flow-tested, but oil was proven from pressure testing and sampling. Despite the good flow rates, the field was considered marginal in the early 1960s and deemed non-commercial in the 1990s due primarily to low oil price and supply economics.

Island has been approved as an operator in the Netherlands on the back of the Company's successful operatorship offshore Ireland during 2006. Island is nearing completion of a new reservoir study over the License area which has provided the Company with a greater insight into the distribution of better quality sands which will assist in optimizing the location of future wells. Island plans to develop the Amstel field by tying it back to existing facilities and targeting first oil in late 2008/early 2009 contingent upon rig availability.

Commenting on the License Award, Paul Griffiths, Chief Executive of Island stated:

"The award of this license further underpins our strategy of focusing on near-development oil and gas projects that are capable of generating early cash flow due to proximity to existing infrastructure. We are delighted that this award has resulted in two landmark milestones for the Company being attained: our first international license and acceptance as an approved operator of a major field development project in a mature and strategic oil and gas province. Island will continue to seek to evaluate potential opportunities in the Netherlands and internationally, subject to these being consistent with the Company's near-development investment strategy and new status as an approved operator of a field development project."