As set out in the Interim Results, for the period ended 31 January 2009, Island has existing cash flow and no bank debt. Having reviewed the various equity funding options available to the Company, including testing the equity market with a funding roadshow to institutional investors, the Board has decided that in order to preserve cash it is making significant reductions in the company's costs and is curtailing uncommitted expenditures.

Island has a "hard" asset base, including discovered hydrocarbons, capable of rationalisation leaving Island with an attractive, focused business with good growth potential in Morocco in particular. The potential to raise organic capital through asset sales to reduce the dependency on external finance in the future is high. In this respect the Board believes that monetisation of the Celtic Sea gas assets offers the best and earliest opportunity to achieve this objective. Initial expressions of interest have already been received from several interested parties and the Board will focus on developing these to a stage where a sales process can be concluded in a timely manner and in the best interests of all shareholders.

In order to accelerate the monetisation of the Celtic Sea gas assets, the Chairman has indicated that he is prepared to provide a loan of £500,000, on terms and conditions to be agreed, to the Company to continue its operations in the short term.

To secure its developing licence position in Morocco (Sidi Moussa, Foum Draa and Zag Exploration Licences), Island, through its wholly owned subsidiary Island International Exploration BV ("IIEBV") has put up funds for certain bank guarantees to the Government of the Kingdom of Morocco, as required under the licence terms and conditions. Companies in which directors Mr. Benitz and Mr. Griffiths have a beneficial interest, Longreach Oil and Gas Ventures Limited ("Longreach") and Celtex Exploration Services Limited ("Celtex") respectively, are providing the necessary funds to IIEBV, by means of loans secured on the licence interests, to enable it to satisfy the required bank guarantees. Discussions around the terms of such funding are expected to be agreed shortly following the change in circumstances created by the absence of new funds from an equity raising.

Other forms of company restructuring, mergers and acquisitions, have not been ruled out and will be investigated by the Board over the coming months.

Celtic Sea Gas Assets - Strategically significant assets in the context of Ireland's security of supply issues

The strategic importance of gas storage in Ireland has been emphasised by recent news flow addressing the issues surrounding security of European gas supply. Governments are looking to gas storage facilities as a means of providing essential sources of strategic reserves. Demand for gas storage is rising as supply issues in Continental Europe become a key issue. This is even more significant for Ireland, which not only lies at the end of the European gas network, but who's storage facilities fall far short of the European Union's recommendation of 3 months of consumption. The global growth of LNG trade will also create a requirement for additional gas storage capacity as attempts to hedge against regional and seasonal price fluctuations gather momentum.

Island's Celtic Sea gas assets have the potential to make a significant contribution to security of supply and are attractive to potential purchasers of the assets based on:

• no investment in expensive cushion gas is required, lowering the front-end investment in the storage facility; • start-up field depletion to provide storage space creating significant cash flow early in the life of the facility thereby improving the economics of the project; • storage operations can commence relatively early compared to many other European projects, which are still at the early stages of planning • the facility's offshore location reduces the issues related to the requirement for planning consents, when compared to onshore storage projects.

Tags: Island Oil & Gas