potential 100 million barrels reserve increase

Island farms out Albanian interest

filed from Aberdeen

12/17/2007 3:07:55 PM GMT

ALBANIA: Island Oil & Gas plc subsidiary Island International Exploration BV (IIEBV) has acquired the remaining 50 percent equity interest in the Durresi Block offshore Albania from Lundin Albania BV.



This transfer of interest has been formally approved by the National Agency of Natural Resources in the Republic of Albania (AKBN). IIEBV has, in addition, agreed to farm out terms with Australian company Beach Petroleum Limited.



The farm out terms with Beach involve Beach or a Beach nominated subsidiary company acquiring a 25 percent equity interest in the Durresi Block for back costs.



Island has granted Beach an option to increase its equity to 45 percent by contributing 55 percent of the dry hole cost of one well at a location to be mutually agreed between the IIEBV and Beach.



The completion of the farm in transaction is subject to Beach's board of directors approval and the formal written consent of the AKBN. On receipt of both of the above approvals, a Petroleum Complementary Agreement will be negotiated with the AKBN to formally confirm IIEBV and Beach as parties to the Durresi Block Licence.



The Petroleum Complementary Agreement will then be subject to the formal written consent of the AKBN on behalf of the Albanian Council of Ministers.



The Durresi Block covers an area of 4,200 square kilometres (1,621 square miles) along the Adriatic coast of Albania. It contains the unappraised A4-1X gas/condensate discovery drilled by Chevron and Agip in 1993 at a time of lower oil and gas prices.



Several undrilled oil and gas prospects and leads exist in the Durresi Block along the northern edge of the Apulia Platform. This trend is currently the focus of renewed exploration and licence activity in the adjacent Italian offshore.



Island Chief Executive Paul Griffiths commented, "Island has strengthened its position offshore Albania in an area that is attracting renewed industry interest. We are particularly pleased to have agreed farmout terms with Beach Petroleum Limited who we believe will be an ideal partner for Island to accelerate exploration activity in this region."



Hector Gordon, chief operating officer of Beach, added, "We are delighted to be joining Island in the Durresi Block in an exciting oil and gas province. We consider that subsequent exploration at the Block, which will target deeper water prospects, will have the potential to yield reserves in excess of 100 million barrels of oil equivalent, net to Beach, on the basis of the current 25 percent interest."