Connemara Option Agreement

Island Oil and Gas PLC
17 July 2007


17 July 2007


      ISLAND ANNOUNCES SHARE PURCHASE AND CONNEMARA OPTION AGREEMENT 
                           WITH BLUEWATER GROUP


Island Oil & Gas plc ('Island' or the 'Company') today announces that it has
concluded a Heads of Agreement (the 'Agreement') with Supernova Energy B.V.,
which is a member of the Bluewater Group ('Bluewater') of the Netherlands, a
member of the Bluewater group of companies, over Frontier Exploration Licence 
1/04 (the 'Licence') located in the Porcupine Basin in the Atlantic Margin off 
the west coast of Ireland. The Licence includes the Connemara Field and several
significant exploration prospects. Island is operator with a 61.5% interest. The
Agreement is subject to approval of the Irish Minister for Communications,
Marine and Natural Resources and joint venture partners.


Highlights:


• Bluewater will purchase 3,750,000 ordinary shares in Island for
  Stg£0.60 per share in a private placing (total value Stg£2.25m), giving
  Bluewater an exclusive option to farm in for 10% equity in the Licence, at no
  additional cost, exercisable up to 31 December 2007;


• Island will grant Bluewater a second option to farm in for an additional
  10% equity in return for a cash consideration of a further Stg£2.25m,
  exercisable up to 31 December 2007;


• Island and Bluewater will also form a joint venture partnership to
  apply for blocks in the upcoming South Porcupine Licensing round. Island will
  operate and hold no less than a 51% participation interest in the joint venture.


Island and Bluewater will work closely on progressing development options for
the Connemara Field and in accelerating farmout activity in respect of the joint
venture's Atlantic Margin portfolio of exploration prospects.



Commenting on the Agreement with Bluewater, Paul Griffiths, Chief Executive of
Island, said:


'Island has again continued its successful track-record of forming industry
alliances with major players in their own field. As a specialist in the
operation of Floating Production Systems, Bluewater are an ideal partner in the
Porcupine Basin. We have also demonstrated our stated intention of moving
forward key Atlantic Margin projects. We look forward to a successful
partnership with Bluewater.'


Enquiries:

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


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


Anthony Farrell
Davy
Tel: + 353 1 679 6363


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 and Morocco.   Island is involved in an exploration and
appraisal programme which in 2006 saw successful Celtic Sea gas wells at the Old
Head of Kinsale and the Seven Heads Sub-Area.  The Company has again secured the
Petrolia rig for its 2007 Celtic Sea drilling programme. This commenced in the
second quarter of 2007 with a successful gas appraisal well at the Old Head of
Kinsale gas field.


Bluewater has built a technological lead specialising in lease and operation of
tanker-based Production and Storage (FPSO/FSO) systems, and has become a leading
provider of advanced Single Point Mooring (SPM) systems. Bluewater operates
worldwide with offices in The Netherlands, United Kingdom, United States,
Nigeria, Angola, South Africa, Malaysia and China



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