IOG.L Regulatory News (IOG)

10 Apr 2007 07:01

Island Oil and Gas PLC10 April 2007 10 April 2007 ISLAND OIL & GAS CONCLUDES FARM OUT AGREEMENTS ON THE OLD HEAD OF KINSALE AND CONNEMARA FIELDS, OFFSHORE IRELAND Island Oil & Gas plc ("Island") (LSE:IOG) today announces that, in line with itscurrent strategy of bringing forward the value of its project portfolio, it hasconcluded two farm out agreements. •Island has concluded a farm out agreement with Valhalla Oil and GasLimited ("Valhalla") (OTC:VAOG) whereby Valhalla will acquire a 20% interest inthe 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 isexpected to commence during May this year using the Petrolia rig. •Island and Valhalla (its co-licensee), have concluded an agreementwhereby they will give Netherlands-based Oyster Energy ("Oyster"), a subsidiaryof Horizon Energy Partners ("Horizon") the option to farm in for a 10% interest(pro-rata 6.15% and 3.85% respectively) in Island-operated Frontier ExplorationLicence 1/04 ("Connemara") in the Porcupine Basin on the Atlantic Margin,offshore Ireland. •Island is currently engaged in additional farm out discussions withother 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 inthe Old Head of Kinsale gas field, reducing Island's interest to 80%, in returnfor a cash consideration of Stg£2 million plus a 7.5% royalty, which will bedetermined 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 andtie-back both this well and the well 49/23-1 (successfully drilled in 2006) tothe Kinsale platform next year with a view to producing first gas in the fourthquarter of 2008. Connemara Farm Out Agreement Option Under the terms of the Connemara farm out option, Oyster will have the exclusiveoption to farm in to 10% of Frontier Exploration Licence 1/04, pro-rata fromIsland and Valhalla, for a cash consideration. The option must be exercisedprior to 31 August 2007. On exercise, Island's equity would reduce from 61.5% to55.35% and Valhalla's from 38.5% to 34.65%. Frontier Exploration Licence 1/04 covers Block 26/28 and part Blocks 26/27, 35/2and 35/3 on the Atlantic margin and contains the Connemara oil field and severalundrilled exploration prospects, 150 km offshore the west of Ireland in thePorcupine Basin. An integrated subsurface study is currently being conducted by Horizon EnergyPartners, which is key to determining the potential field performance and hencecommercial feasibility of developing the Connemara Field. Both agreements are subject to approval from the Irish Minister forCommunications, Marine and Natural Resources. Note: The option agreement with EnCore Oil plc to acquire up to 20% in theConnemara Licence has been extended until 30 June 2007. Paul Griffiths, Chief Executive of Island, commented: "These farm out agreements underline our strategy of accelerating keydevelopment projects through alliances with strategic industry partners. We lookforward to working with Valhalla on this year's programme at the Old Head ofKinsale; an important step in developing our portfolio. We also hope to work inclose partnership with Horizon Energy Partners, which has a track record ofidentifying innovative and cost-effective field development concepts, goingforward. We continue to pursue farm out opportunities which enhance thedevelopment of our near term oil and gas projects." Enquiries: Lisa J Newman MCIPR MIRSNewman Consulting Tel: +44 (0)1252 878682 Notes to Editors: About Island Island was founded in 2003 and listed on AIM in December 2004 (LSE:IOG). TheCompany has interests in eleven Irish offshore licences, as well as licences inthe Netherlands and Morocco. Island is involved in an exploration andappraisal programme which in 2006 saw successful Celtic Sea gas wells at the OldHead of Kinsale and the Seven Heads Sub-Area. The Company has again secured thePetrolia rig for its 2007 Celtic Sea drilling programme. This is due to commencein the second quarter of 2007 with an appraisal well at the Old Head of Kinsalegas field, followed by an appraisal well at the Schull gas field. Further information on Island can be found on the Company's website at http://www.islandoilandgas.com. This information is provided by RNS The company news service from the London Stock Exchange