Island Oil & Gas Wins Moroccan License

Island Oil & Gas has signed a reconnaissance contract for the granting of an Exclusive Reconnaissance License in the Zag Basin onshore Morocco, by the Office National des Hydrocarbures et des Mines ("ONHYM"). The granting of the License represents the further internationalization of Island's project portfolio with the Company focusing upon areas where its experience and technical competency can be utilized to best advantage.

The License, which is valid for a period of 12 months until December 2007, covers an area of 21,807 sq. kms. The work program that has been committed to comprises geological field studies; a geochemical study; the processing and interpretation of gravity and magnetic data; and the interpretation of satellite data. The joint venture partners in the License are San Leon (Morocco) Limited (50%), the designated operator; GB Oil and Gas Ventures Limited (30%) and Island Oil & Gas plc (20%). Island's costs are fully carried by GB Oil and Gas Ventures Limited for the duration of the 12 month License.

The Zag Basin is an under-explored Palaeozoic North African sedimentary basin within which no seismic data have been acquired to date. Wells drilled in the 1960's encountered gas shows in Palaeozoic sandstones, with surface oil shows also observed. An active petroleum system is believed to be present in this basin based on the early drilling history and the proven presence of a source rock equivalent to that responsible for the major Palaeozoic oil and gas fields of neighbor countries.

Morocco has an attractive fiscal regime relative to other North African oil and gas producing countries - State Participation upon production of up to 25%; 10% royalty on oil production (first 300,000 tons of production exempt) and 5% royalty on gas production (first 300 million cubic meters exempt); and 35% corporation tax (only after 10 years of production holiday).

Commenting on the award of the new license, Paul Griffiths, Chief Executive of Island stated:

"The award of the Moroccan license covering an area approximately one third the size of Ireland in one of the least explored prospective Palaozoic basins in North Africa marks a further step in our plans to broaden our international acreage position, particularly in onshore areas where drilling and development costs are potentially lower relative to the offshore environment. Our participation was achieved on the basis that we bring a proven operating capability to the joint venture partnership in the event that we move towards a successor license. We believe that Morocco is under-explored relative to other North African countries and we look forward to building a strong working relationship with ONHYM in order to develop other opportunities for Island".