Acquisition

Island Oil and Gas PLC
10 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 gas
exploration company, today announces the completion, following Irish government
and partner approvals, of an agreement entered into on 23 December 2004 to
acquire a portfolio of assets from Lundin Petroleum AB ('Lundin', 'the
Transaction').  The Transaction considerably strengthens and consolidates
Island's strategic position in both the Celtic Sea and Atlantic margin, offshore
Ireland, 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 of
the transaction, these shares may not be sold or transferred by Lundin, except
to an affiliate, within 12 months from the completion of the transaction.  The
oil 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 'Area
of Mutual Interest Agreement', whereby the two companies can jointly pursue
other opportunities offshore Ireland.

Prior to the Lundin transaction, Island held a 10% net profit interest (NPI) in
the portfolio of Irish licenses held by Lundin.  In return for the transfer to
Island of the licence interests described above (apart from the Seven Heads
Petroleum Lease interest), the NPI has been cancelled.  The acquisition of these
interests allows Island to participate more pro-actively in the potential future
success of these projects.

* Licensing Options 03/5 and 03/6 are currently the subject of negotiations
between the Operator and the Petroleum Affairs Division of the Department of
Communications, Marine and Natural Resources of Ireland ('PAD') for Successor
Authorisations;


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, Chief
Executive of Island, stated:

'In 2004, we embarked upon our stated strategy to create synergies in our
portfolio of Celtic Sea oil and gas interests.  The completion of the Lundin
Transaction consolidates this strategy by establishing important commercial
agreements both with Marathon to allow access to the Kinsale production
facilities for the processing of Island's share of Seven Heads production, and
with RWE to provide a sales outlet for gas produced by Island.  Acquisition of a
debt-free interest in the Seven Heads infrastructure provides us with a hub
around which we have a significant number of potentially high quality gas
prospects and existing discoveries.  As a result of access to this
infrastructure, any of our future Celtic Sea discoveries can now be brought
onstream 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 actively
developing plans for its 2006 multi-well drilling programme.'


Enquiries:

Lisa J Newman MCIPR MIRS                  Tel: [phone]
Newman Consulting                         Email: [e-mail]


Notes to editors:


Island, which was founded in 2003, listed on AIM in December 2004.  The Company
aims to capitalise upon its technical knowledge and expertise to become a
regionally focused international oil and gas exploration company, whilst
continuing to develop its existing Irish projects.  The Company's management
team has extensive experience in oil and gas exploration as well as in business
and finance.  Island currently has interests in a number of licences and options
off the west coast of Ireland and off the southeast of Ireland in the Celtic
Sea.  In addition, Island is actively pursuing other potential opportunities to
broaden its geographic exposure.  The Company has cash in bank as at 31 January
2005 of £8.47 million and no debt.

Lundin Petroleum is a Swedish independent oil and gas exploration and production
company with a portfolio of assets in Albania, France, Indonesia, Ireland, the
Netherlands, Nigeria, Norway, Sudan, Tunisia, the United Kingdom and Venezuela.
It is listed on the Attract 40 list of the Stockholm Stock Exchange and has a
current 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


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