Island in Deal with Bluewater for Porcupine Basin License

Island Oil & Gas has concluded a Heads of Agreement with Supernova Energy B.V., which is a member of the Bluewater Group of the Netherlands, a member of the Bluewater group of companies, over Frontier Exploration License 1/04 located in the Porcupine Basin in the Atlantic Margin off the west coast of Ireland. The License includes the Connemara Field and several significant exploration prospects. Island is operator with a 61.5% interest. The Agreement is subject to approval of the Irish Minister for Communications, Marine and Natural Resources and joint venture partners.


--Bluewater will purchase 3,750,000 ordinary shares in Island for Stg£0.60 per share in a private placing (total value Stg£2.25m), giving Bluewater an exclusive option to farm in for 10% equity in the License, at no additional cost, exercisable up to December 31, 2007;

--Island will grant Bluewater a second option to farm in for an additional 10% equity in return for a cash consideration of a further Stg£2.25m, exercisable up to December 31, 2007;

--Island and Bluewater will also form a joint venture partnership to apply for blocks in the upcoming South Porcupine Licensing round. Island will operate and hold no less than a 51% participation interest in the joint venture.

Island and Bluewater will work closely on progressing development options for the Connemara Field and in accelerating farmout activity in respect of the joint venture's Atlantic Margin portfolio of exploration prospects.

Commenting on the Agreement with Bluewater, Paul Griffiths, Chief Executive of Island, said:

"Island has again continued its successful track-record of forming industry alliances with major players in their own field. As a specialist in the operation of Floating Production Systems, Bluewater are an ideal partner in the Porcupine Basin. We have also demonstrated our stated intention of moving forward key Atlantic Margin projects. We look forward to a successful partnership with Bluewater."

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