Island Oil & Gas Inks Farm Out Deal for Old Head of Kinsale Gas Field

Island Oil & Gas plc announces that, in line with its current strategy of bringing forward the value of its project portfolio, it has concluded two farm out agreements.

Island has concluded a farm out agreement with Valhalla Oil and Gas Limited whereby Valhalla will acquire a 20% interest in the Island-operated Exploration Licence 4/05 ("Old Head of Kinsale" gas field) in the Celtic Sea, offshore Ireland. Drilling of appraisal well 49/23-2 is expected to commence during May this year using the Petrolia rig.

Island and Valhalla (its co-licensee), have concluded an agreement whereby they will give Netherlands-based Oyster Energy, a subsidiary of Horizon Energy Partners the option to farm in for a 10% interest (pro-rata 6.15% and 3.85% respectively) in Island-operated Frontier Exploration Licence 1/04 in the Porcupine Basin on the Atlantic Margin, offshore Ireland.

Island is currently engaged in additional farm out discussions with other third parties as part of its wider farm out strategy.

Old Head of Kinsale Farm Out Agreement
Under the terms of this agreement, Island will assign Valhalla a 20% interest in the Old Head of Kinsale gas field, reducing Island's interest to 80%, in return for a cash consideration of StgĀ£2 million plus a 7.5% royalty, which will be determined by a number of factors including field performance.

Valhalla will immediately participate pro-rata in the upcoming appraisal well 49 /23-2. Assuming a successful test, the partners would look to complete and tie-back both this well and the well 49/23-1 (successfully drilled in 2006) to the Kinsale platform next year with a view to producing first gas in the fourth quarter of 2008. Connemara Farm Out Agreement Option
Under the terms of the Connemara farm out option, Oyster will have the exclusive option to farm in to 10% of Frontier Exploration Licence 1/04, pro-rata from Island and Valhalla, for a cash consideration. The option must be exercised prior to 31 August 2007. On exercise, Island's equity would reduce from 61.5% to 55.35% and Valhalla's from 38.5% to 34.65%.

Frontier Exploration Licence 1/04 covers Block 26/28 and part Blocks 26/27, 35/2 and 35/3 on the Atlantic margin and contains the Connemara oil field and several undrilled exploration prospects, 150 km offshore the west of Ireland in the Porcupine Basin.

An integrated subsurface study is currently being conducted by Horizon Energy Partners, which is key to determining the potential field performance and hence commercial feasibility of developing the Connemara Field.

Both agreements are subject to approval from the Irish Minister for Communications, Marine and Natural Resources.

Note: The option agreement with EnCore Oil plc to acquire up to 20% in the Connemara Licence has been extended until 30 June 2007.

Paul Griffiths, Chief Executive of Island, commented:
"These farm out agreements underline our strategy of accelerating key development projects through alliances with strategic industry partners. We look forward to working with Valhalla on this year's programme at the Old Head of Kinsale; an important step in developing our portfolio. We also hope to work in close partnership with Horizon Energy Partners, which has a track record of identifying innovative and cost-effective field development concepts, going forward. We continue to pursue farm out opportunities which enhance the development of our near term oil and gas projects."