IOG.L Regulatory News (IOG)

10 Jun 2005 07:30

Island Oil and Gas PLC10 June 2005 ISLAND OIL AND GAS COMPLETES THE ACQUISITION OF IRISH OFFSHORE INTERESTS FROM LUNDIN PETROLEUM Island Oil and Gas plc ("Island"), the technology-led independent oil and gasexploration company, today announces the completion, following Irish governmentand partner approvals, of an agreement entered into on 23 December 2004 toacquire a portfolio of assets from Lundin Petroleum AB ("Lundin", "theTransaction"). The Transaction considerably strengthens and consolidatesIsland's strategic position in both the Celtic Sea and Atlantic margin, offshoreIreland, ahead of the Company's planned 2006 multi-well drilling programme. As consideration for the sale, Lundin has received four million Island shares,representing 8.45% of the issued share capital of Island. Under the terms ofthe transaction, these shares may not be sold or transferred by Lundin, exceptto an affiliate, within 12 months from the completion of the transaction. Theoil and gas interests acquired by Island comprise: • A 12.5% participating interest in the Seven Heads Petroleum Lease and related infrastructure, together with the net revenue resulting from Seven Heads Gas production after 1 October 2004; • A 12.5% participating interest in Licensing Option 03/5, covering Seven Heads Oil*; • A 22% participating interest in the Licensing Option 03/6 covering the Roscarberry area, in the North Celtic Sea*; • An option, which Island plans to exercise, to acquire a 5% groundfloor participating interest in Frontier Exploration Licence 1/05 covering the Donegal Basin Block 13/7 and part-blocks 13/11 and 13/12. Island already has a 26% participating interest in FEL 1/05 from an earlier farm-in agreement with Ramco Donegal Limited and Sunningdale Donegal Basin Limited. A well is planned on this licence during 2006. In addition to the above interests, Island and Lundin have entered into an "Areaof Mutual Interest Agreement", whereby the two companies can jointly pursueother opportunities offshore Ireland. Prior to the Lundin transaction, Island held a 10% net profit interest (NPI) inthe portfolio of Irish licenses held by Lundin. In return for the transfer toIsland of the licence interests described above (apart from the Seven HeadsPetroleum Lease interest), the NPI has been cancelled. The acquisition of theseinterests allows Island to participate more pro-actively in the potential futuresuccess of these projects. * Licensing Options 03/5 and 03/6 are currently the subject of negotiationsbetween the Operator and the Petroleum Affairs Division of the Department ofCommunications, Marine and Natural Resources of Ireland ("PAD") for SuccessorAuthorisations; Overview of acquired interests: The Seven Heads Gas Project: • For the period from 1 October 2004 to the date of completion, gas production from the Seven Heads field resulted in gross revenues of approximately €800,000 in respect of Lundin's 12.5% participating interest. Island will receive from Lundin a cash settlement of approximately €470,000, which represents the gross revenues accruing, less operating expenses, for this period. These amounts are subject to final adjustment and reconciliation. • As a result of this transaction, Island has acquired a 12.5% debt-free interest in the Seven Heads infrastructure for which a gross investment in excess of £120 million was made by the Seven Heads partners prior to the commencement of gas production. • Island has become a party to the existing Transportation, Processing and Operational Services Agreement with Marathon Oil Ireland Limited ("Marathon "), whereby access to the Kinsale platform facilities is given to Seven Heads Gas. Island has replaced Lundin in the Seven Heads Gas Sales Contract with RWE Trading (Ireland) Limited ("RWE"). • In addition to its share of the estimated 17 bcf of the remaining gas reserves contacted by the existing development wells, Island has also acquired its share of potential reserves of 64 bcf in as yet undrilled areas of the field based on potential reserves data recently announced by the operator. Production history from the Seven Heads gas field indicates that the field should continue to produce gas at restricted rates until such time as compression facilities on the Kinsale platform become available in 2007 or 2008. Thereafter, an increase in production rates may be achievable. • Island's debt-free position in the field, alongside its low overheads, allows it, based on current market projections, to continue to produce economically from the field at low rates whilst progressing plans to drill, appraise and potentially develop any of its satellite discoveries and prospective structures which could be tied back to the Seven Heads infrastructure. Island, in conjunction with present and potential future partners, will pursue the development of a strategy for a viable programme of investment to optimise future Seven Heads gas production. The Donegal Basin: • The completion of the Transaction further strengthens Island's strategic position on the Atlantic Margin. The Company will increase its participating interest to 31% in its Donegal Basin Blocks through the exercise of an option with Lundin to acquire an additional 5% in FEL 1/05, thereby giving Island the largest equity position in two large Triassic gas prospects. • The Atlantic Margin is very much under-explored, yet has already yielded four oil and gas discoveries, one of which, Corrib, is being developed. Commenting on the completion of the Lundin Transaction, Paul Griffiths, ChiefExecutive of Island, stated: "In 2004, we embarked upon our stated strategy to create synergies in ourportfolio of Celtic Sea oil and gas interests. The completion of the LundinTransaction consolidates this strategy by establishing important commercialagreements both with Marathon to allow access to the Kinsale productionfacilities for the processing of Island's share of Seven Heads production, andwith RWE to provide a sales outlet for gas produced by Island. Acquisition of adebt-free interest in the Seven Heads infrastructure provides us with a hubaround which we have a significant number of potentially high quality gasprospects and existing discoveries. As a result of access to thisinfrastructure, any of our future Celtic Sea discoveries can now be broughtonstream quickly and at a fraction of the cost of a stand-alone development,subject to normal commercial agreements with the various parties. Following the successful completion of this transaction, Island is now activelydeveloping plans for its 2006 multi-well drilling programme." Enquiries: Lisa J Newman MCIPR MIRS Tel: +44 (0)7747 462574Newman Consulting Email: newmanconsulting@hotmail.com Notes to editors: Island, which was founded in 2003, listed on AIM in December 2004. The Companyaims to capitalise upon its technical knowledge and expertise to become aregionally focused international oil and gas exploration company, whilstcontinuing to develop its existing Irish projects. The Company's managementteam has extensive experience in oil and gas exploration as well as in businessand finance. Island currently has interests in a number of licences and optionsoff the west coast of Ireland and off the southeast of Ireland in the CelticSea. In addition, Island is actively pursuing other potential opportunities tobroaden its geographic exposure. The Company has cash in bank as at 31 January2005 of £8.47 million and no debt. Lundin Petroleum is a Swedish independent oil and gas exploration and productioncompany with a portfolio of assets in Albania, France, Indonesia, Ireland, theNetherlands, Nigeria, Norway, Sudan, Tunisia, the United Kingdom and Venezuela.It is listed on the Attract 40 list of the Stockholm Stock Exchange and has acurrent market capitalization of approximately 14.1 billion Swedish Krona Further information on Island can be found on the Company's website at www.islandoilandgas.com This information is provided by RNS The company news service from the London Stock Exchange