IOG.L Regulatory News (IOG)

5 Jun 2009 07:00



ISLAND OIL & GAS PLC

("ISLAND" or the "COMPANY")

5 June 2009

Celtic Sea Gas Assets - Operational Update

Highlights

Significant improvement in internal assessment of Celtic Sea gas in place

North & Central Schull prospects suggest considerable exploration upside

Discussions regarding monetisation of Celtic Sea assets ongoing 

Gas in Place Estimates

Island Oil & Gas Plc, the Irish exploration and production company, announces that following the interpretation of new seismic data acquired in 2008, the analysis of production data from the Seven Heads gas field during the past three years and the completion of its technical programme to evaluate the probabilistic range of gas in place estimates for the Old Head of Kinsale and Schull gas fields (the "Fields"), the Company has significantly increased Proven plus Probable gas in place estimates for the two fields relative to previous estimates announced in the Company's Resource Update in November 2007 as follows:

Island has 65% net equity in Old Head and 62.5% net equity in Schull.

In addition the Company has matured its low risk North Schull and Central Schull exploration prospects adjacent to the Schull gas field. Deterministic unrisked gas in place estimates for these prospects are as follows:

Gas Storage Studies

Island has commenced a scoping reservoir engineering study, using an independent consultant with specific gas storage experience (Humbly Grove gas storage project - now owned by Star Energy / Petronas), to evaluate injection and withdrawal rates for conversion of the Old Head gas field to a gas storage facility early in the future production life of the field. Pegasus Engineering has been commissioned to carry out a scoping gas storage engineering and facilities study based on two possible development options: tie-back to the Kinsale platform facilities or, the construction of new infrastructure to tie-back direct to shore from the Old Head of Kinsale gas field. The initial design parameters for the gas storage facility assume a winter peak daily delivery rate in the range of 100 to 150 mm cfgpd and a storage capacity in the range of 10 to 15 bcf based on a P90 gas in place estimate of 49 BCF and a reservoir pressure of 1781 psia. 

Subject to the results of the engineering and facilities study described above, Island will also investigate the potential conversion of the Schull gas field to a gas storage facility.

The potential gas storage projects outlined above, unlike many proposed and active projects in NW Europe, do not rely upon purchasing expensive cushion gas, required to provide pressure support in the reservoir for storage operations, to re-charge depleted gas fields. The Old Head of Kinsale and Schull projects will have valuable cushion gas in place to support any future gas storage operations.

The potential development of the Old Head of Kinsale and Schull gas fields will be subject to the approval of partners and the approval by the Minister for Communications, Marine and Natural Resources of Ireland.

New Opportunities

These new technical studies undertaken by Island have also identified additional perforating opportunities in the Seven Heads gas field following the successful testing of our 48/23-3 gas appraisal well in 2006. These are now the subject of a detailed in-house reservoir engineering study to determine potential production profiles and development costs. Island will continue to seek to maximise the potential value of its interest in the producing Seven Heads gas field. 

Commercial Discussions

Island has initiated preliminary discussions with financial institutions, gas and electric utility companies regarding the financing of the Old Head of Kinsale and Schull gas field developments and the marketing of the potential future gas production from the fields and the associated gas storage capacity.

Island will seek to prudently monetise these projects at an early stage through a potential sale of a stake to a strategic partner who can bring additional skills and expertise to assist with maximising the future potential cash flows from a successful development of the assets.

Commenting on the above, Chief Executive Paul Griffiths said:

"During 2009 Island has matured its Celtic Sea gas assets to a stage where substantive discussions are now taking place regarding the financing of the potential development of the Old Head of Kinsale and Schull gas fields. 

Whilst there are risks to the project, major utility players as well as a number of other stakeholders have recognised the potential of our assets as a gas storage play. This could be valuable in a region where security of supply becomes more and more important as both commercial and geological aspects mature.

Through its "First Mover" strategy in the Celtic Sea in 2006, when it discovered the Old Head of Kinsale gas field, the Company has established a unique position of having valuable cushion gas in place for conversion of fields to gas storage."

Notes to Editors:

This update has been reviewed and approved by Paul Griffiths, Chief Executive of Island. Paul Griffiths is a geology graduate of the Royal School of Mines, Imperial College London, and is a member of the Petroleum Exploration Society of Great Britain. He has 30 years experience in the oil and gas exploration sector and is a qualified person as defined in the guidance note for Mining Oil & Gas Companies, March 2006 of the London Stock Exchange.

Glossary of technical terms: all technical terms used in this update are aligned with the standards set by the Society of Petroleum Engineers, the recognised international benchmark. 

Bcf - billions of cubic feet of gas

Cfgpd - cubic feet of gas per day

P10 - proven, probable and possible reserves

P50 - proven and probable reserves

Proven Reserves - Those quantities of petroleum which, by analysis of geological and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under current economic conditions, operating methods, and government regulations. Proved reserves can be categorized as developed or undeveloped. If deterministic methods are used, the term reasonable certainty is intended to express a high degree of confidence that the quantities will be recovered. If probabilistic methods are used, there should be at least a 90% probability that the quantities actually recovered will equal or exceed the estimate.

Psia - pounds per square inch pressure absolute value

Probable Reserves - Those unproved reserves which analysis of geological and engineering data suggests are more likely than not to be recoverable. In this context, when probabilistic methods are used, there should be at least a 50% probability that the quantities actually recovered will equal or exceed the sum of estimated Proved plus Probable reserves.

Possible Reserves - Those unproved reserves which analysis of geological and engineering data suggests are less likely to be recoverable than probable reserves. In this context, when probabilistic methods are used, there should be at least a 10% probability that the quantities actually recovered will equal or exceed the sum of estimated Proved plus Probable plus Possible reserves.