San Leon says that on 15 October 2009 that it had made an indicative proposal to Island for the combination of the two companies with a view to building a strong Irish-based oil and gas exploration and development business.

The indicative non-binding offer for Island (the "Possible Offer") was made on the basis of 1 new San Leon Share for every 2.3 Island Shares.

Further to the announcement on 15 October, the Directors of Island have indicated that, should San Leon make a firm offer for Island on the same basis as the Possible Offer, it is their current intention to recommend such an offer. A further announcement will be made in due course.

Provision of Working Capital Facility to Island In light of the positive discussions, San Leon has agreed to advance a loan facility to Island of €500,000 ("the Loan"). The purpose of the Loan is to provide working capital to Island.

The Loan consists of two tranches, an initial tranche of €300,000 followed by a second tranche of €200,000 and shall bear interest at 3 per cent. over EURIBOR per annum and is repayable no later than 31 March 2010.

The Loan and accrued interest is repayable on 31 January 2010 if San Leon and Island do not make an announcement pursuant to rule 2.5 of the Irish Takeover Rules ("2.5 Announcement") in relation to Island by this date and is also immediately repayable if a 2.5 Announcement is made in relation to Island by any person other than San Leon.

The Loan will be secured by Island granting a charge in favour of San Leon over all of the shares owned by Island in Island (Seven Heads) Limited a wholly owned subsidiary of Island. The main asset of Island (Seven Heads) Limited is a 12.5 per cent. interest in the Celtic Sea based Seven Heads gas-producing field.

Oisin Fanning, Chairman of San Leon, commented,"We are very pleased with the progress that has been made with Island since our initial approach in October. Both companies are working hard to reach an agreement on a recommended offer which we believe is in the best interests of both sets of shareholders. We are pleased to be able to provide Island with a short term loan facility to help with their working capital and are confident that we will be in a position to make an offer for Island before the 31 January deadline."

Tags: Island Oil & Gas, San Leon Energy