MOU with Valiexchimp

Island Oil and Gas PLC
05 November 2007



05 November 2007

   ISLAND ANNOUNCES EXECUTION OF MEMORANDUM OF UNDERSTANDING WITH VALIEXCHIMP
 S.L.R. COVERING VARIOUS PRODUCING OIL AND GAS FIELDS AND INFRASTRUCTURE IN THE
                       REPUBLICS OF MOLDOVA AND TATARSTAN

Island Oil & Gas plc ('Island' or the 'Company') today announces that it has
executed a Memorandum of Understanding (the 'MOU') with Valiexchimp S.L.R.
('Valiexchimp') giving Island the exclusive option, up until 30 November 2007
and subject to satisfactory technical, commercial and legal due diligence, to
acquire, through a Joint Venture Company ('JVC'), 50% owned by Island and 50%
owned by Valiexchimp, a 50% equity stake in certain upstream and downstream oil
and gas assets, currently owned and operated by Valiexchimp, in the Republic of
Moldova. The MOU also gives Island the exclusive right to a 50% equity stake in
any producing oil and gas assets acquired by Valiexchimp in the Republic of
Tatarstan as a result of a Protocol Agreement relating to the commercial and
economic collaboration between the Ministry of Economics and Foreign Affairs of
the Republic of Tatarstan and the Process Committee of the Republic of Moldova.

The assets that are the subject of the MOU include:

  • the currently producing Valeni Oil Field, with combined gross P50 and P10
    resources of 4.67 mm barrels of oil based on an independent Reserves Report
    produced in March 1996, together with several untested satellite structures;

  • the currently producing Victorovca Gas Field, with combined gross P50 and
    P10 resources of 9.38 bcf of gas based on an independent Reserves Report
    produced in March 1996, and deeper, as yet untested reservoirs with oil and
    gas shows;

  • the Comrat Oil Refinery, with a current capacity of approximately 2,000
    bopd;

  • various oil and gas gathering pipelines and oil storage facilities;

  • five land drilling rigs, including one with a capability of drilling to
    4,000 meters;

  • an exclusive option to acquire producing interests in the Republic of
    Tatarstan through Valiexchimp.

The oil and gas assets are located in Southern Moldova adjacent to the Romania
border and form a continuation of a long-established producing hydrocarbon trend
exploited in Eastern Romania that has to date not been extensively evaluated in
Southern Moldova.

An investment programme over the next two years will result in:

  • up to 44 production wells being drilled to accelerate the recovery of the
    combined P50 and P10 resources established in the 1996 Reserves Report for
    the Valeni and Victorovca Fields;

  • acquisition of 2D seismic to delineate additional potential oil and gas
    structures in the vicinity of the Valeni and Victorovca Fields;

  • the construction of a 9 kilometer gas pipeline to connect the Victorovca
    Field to the MOLDGAZ facilities to increase the market potential for the
    Victorovca gas;

  • Upgrading the Comrat Refinery through the addition of vacuum and bitumen
    facilities to handle asphalt production to sell to the European Union funded
    project to upgrade Moldova's road network.

Currently development wells can be drilled, completed and put on production for
approximately $USD 230,000 per well using the drilling rigs that will as a
result of the Completion of this transaction be jointly owned by Island and
Valiexchimp. Based on current oil and gas prices achieved by Valiexchimp through
export of oil to Romania and Bulgaria, each oil well will potentially pay back
the capital investment in drilling and completing the well in 100 days (after
deduction of Government taxes and operating costs).

The cost of acquiring the equity stake in the Valiexchimp oil and gas assets is
Euros 10 million of which Euros 5 million are paid on formation of the JVC by 30
November 2007. The balance of the acquisition price is payable after 90 days of
continuous oil production from the Valeni Field.

The gross cost of the investment programme over two years is capped at $USD
13.36 million.

Island is issuing 100,000 Ordinary Shares to Valiexchimp in accordance with the
terms of the MOU in respect of securing an option to acquire the assets
described herein by 30 November 2007.

The Company is in discussions with potential investors in order to fund this
opportunity in such a manner that no financial obligation will accrue to
Island's shareholders. Investors in the joint venture will have the opportunity
to participate in a new subsidiary, jointly owned by Island, which will hold the
Moldovan assets and any potential oil and gas assets in Tatarstan. For an
investment of approximately Euro €12 million, to cover Island's acquisition
costs and its share of the investment required to complete the 2008 work
programme, Investors will share in the profits from the Moldovan operations and
have the option to participate in any subsequent projects in Tatarstan. If the
exclusive option is exercised with Valiexchimp, the timing of new drilling and
seismic operations will be coordinated with net positive cash flow projections
from the current production wells in the Valeni and Victorovca Fields to
generate the funds required for the proposed investment programme.

Commenting on the Memorandum of Understanding with Valiexchimp, Paul Griffiths,
Chief Executive said:

'Valiexchimp have established themselves as the dominant oil and gas operator in
Moldova. Their growing reputation has been recognised through their ability to
be considered for potential acquisitions in Tatarstan, a significant oil
province. Island, with its experienced commercial and technical teams,
experience in gas production and marketing, combined with its proven track
record as a highly competent operator, is a natural joint venture partner for
Valiexchimp as it seeks to generate additional value for its growing portfolio
of oil and gas assets. Subject to securing investors that can separately fund
this transaction, in order not to impact Island's core strategy of delivering
value from its Irish and Dutch exploration and near-development assets, Island
can potentially benefit from immediate cash flow from the Moldovan operations.'

Enquiries:

Lisa J Newman MCIPR MIRS
Newman Consulting
Tel: [phone]

Paul Griffiths
Chief Executive
Island Oil & Gas plc
Tel: [phone]

Notes to Editors:

Island was founded in 2003 and listed on AIM in December 2004 (LSE:IOG).  The
Company has interests in eleven Irish offshore licences, as well as licences in
the Netherlands, Morocco and Albania.

     Further information on Island can be found on the Company's website at
                         http://www.islandoilandgas.com










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