Inward Invest up to stg21M

Island Oil and Gas PLC
16 May 2006


16 May 2006


     ISLAND OIL & GAS PLC ANNOUNCES UP TO STG£21 MILLION INWARD INVESTMENT
             OPPORTUNITY AND MAJOR BOOST TO INTERNATIONAL AMBITIONS


Island Oil & Gas plc ('Island' or the 'Company'),  the oil and gas exploration
and production company, today announces that Platinum Petroleum Limited
('Platinum'), an international energy investment group focused on investing in
upstream and downstream assets in the oil and gas sector, has agreed a strategic
investment in Island of up to Stg£21 million, subject to regulatory and
shareholder approvals ('the Transaction').  Island has also entered into a
Memorandum of Understanding ('MOU') with Platinum under which Platinum will
grant Island an opportunity to participate in specific exploration and
production opportunities in both West and North Africa.

The MOU with Platinum represents a major boost to Island's international
aspirations.  Under the terms of the MOU, Platinum will offer Island specific
opportunities in what are proven hydrocarbon provinces,  These opportunities
will be offered under the terms of a proposed Area of Mutual Interest Agreement
('AMI Agreement'), which is to be entered into between the parties.  Any
consideration payable to Platinum arising from a decision by Island to
participate in any opportunity generated under the AMI Agreement will be agreed
on a case-by-case basis

Approvals

Platinum currently holds 15,000,000 ordinary shares in Island (all of which were
acquired in November 2004 prior to AIM admission), amounting to approximately
23% of the current issued share capital of 65,141,000 ordinary shares.
Following completion of all elements of the proposed investment, that
shareholding may rise to 41%. In order to facilitate the Transaction, Island
will seek the approval of independent shareholders at an Extraordinary General
Meeting ('EGM') to be convened in due course, and has applied to the Irish
Takeover Panel for a waiver from any obligation on the part of Platinum to make
a general offer to all shareholders that might otherwise arise under Rule 9 of
the Irish Takeover Rules ('the Waiver').  If the Waiver is granted by the Irish
Takeover Panel, Island will thereafter send an EGM circular to all shareholders,
including a resolution asking the independent shareholders of Island to approve
the Waiver (the 'Approvals').

Convertible Loans

Island has entered into agreements with Platinum relating to the provision of up
to Stg£10 million to Island in two non-interest bearing convertible loans (the
'Loans') and to provide Platinum with 10 million warrants to subscribe for
ordinary shares in Island at Stg£1.10 each (the 'Warrants'), subject to certain
conditions.  The investment provided by Platinum will be applied to Island's
ongoing exploration programme.  As previously announced Island is funding 100%
of the cost of a well in the Seven Heads West Sub-Area, including testing, in
return for increasing its equity interest in the Sub Area from 12.5% to 55.75%.
 Island will also fund 100% of the drilling costs of the Old Head of Kinsale
exploration well in return for increasing its equity interest to 100% subject to
the normal consents and approvals from the Petroleum Affairs Division ('PAD') of
the Department of Communications, Marine and Natural Resources and other
regulatory authorities.

Platinum has agreed to provide a convertible loan to Island in the sum of
Stg£4,500,000 (the 'First Loan').  The First Loan can be drawn down any time
after 21 May 2006 upon Island giving Platinum seven days notice.  Platinum has
also agreed to provide a second convertible loan to Island in the sum of
Stg£5,500,000 (the 'Second Loan') subject to the granting of the Approvals.  The
Second Loan can be drawn down within seven days of the Approvals being granted.
Should the Approvals not be granted, drawdown will not take place.

Both Loans are convertible into ordinary shares at Stg£1.00 per ordinary share
after the EGM of the Company.  If the Approvals are granted, both Loans will
convert into ordinary shares of the Company.  If the Approvals are not granted,
only the First Loan will convert into ordinary shares to the extent that the
shareholding of Platinum after conversion will not exceed 29.99%.  Any loan
capital remaining in the First Loan after conversion will be repayable in cash
to Platinum by 31 December 2006.

Warrants

In consideration for Platinum providing the First Loan, Platinum shall have the
right to subscribe for 4,500,000 ordinary shares of Island at an exercise price
of Stg£1.10 per ordinary share.  In consideration for Platinum providing the
Second Loan, Platinum shall have the right to subscribe for 5,500,000 ordinary
shares of Island at an exercise price of Stg£1.10 per ordinary share.  All of
the Warrants are exercisable within twelve months of the Approvals being
granted.


Commenting on the agreements with Platinum, Paul Griffiths, Chief Executive of
Island, said:

'The large investment by Platinum, Island's largest shareholder, is important in
cementing the strategic relationship between Island and Platinum, which will be
important both in terms of funding our current and future drilling programmes
and in exploring areas outside of Ireland.'

'The execution of the MOU with Platinum potentially adds a new international
dimension to Island's expanding portfolio of oil and gas interests, built up
over the past 18 months by Island's experienced management team. The MOU will
give us access to additional exploration and production opportunities in proven
hydrocarbon basins in North and West Africa.  These opportunities, combined with
having already secured a drilling rig for 2007 and having created an in-house
operating capability, have put us in a strong position to secure new exploration
and production licences in North and West Africa, on the basis that Island can
fast-track drilling activity on such potential licences as early as 2007.  This
gives us a competitive edge compared to other more long-established
operators.'

Enquiries:

Lisa J Newman MCIPR MIRS
Newman Consulting

Tel: [phone]


Notes to Editors :

Island was founded in 2003 and listed on AIM in December 2004.  The Company has
interests in nine Irish offshore licences, (four as operator and two as
technical manager), including one producing gas field. The Company's 2006
three-well drilling programme is now underway offshore Ireland, using the
Petrolia Rig, owned and operated by Petrolia Drilling Limited, under contract to
Island.

Island has spudded its first well of the programme, the 48/23-3 well, targeting
a possible gas structure, at the Seven Heads Sub Area in the Celtic Sea.
Subject to the usual regulatory consents and approvals, the Company intends to
move the rig after the completion of the 48/23-3 well to the nearby Old Head of
Kinsale prospect, to drill 49/23-1, the second well of its 2006 three-well
programme. The rig then moves on to the Donegal Basin for its planned third
well, which will be operated by Lundin. Island is also developing its 2007
exploration plans, and has secured the Petrolia rig for a 2007 150 day drilling
programme.   In addition to its activities offshore Ireland, Island continues to
pursue specific opportunities internationally where it can build value through
the application of its technical expertise.


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



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