Valhalla Oil & Gas Concludes Agreements on the Old Head of Kinsale and Connemara Fields, Offshore Ireland

Valhalla Oil and Gas Limited today announces that it has concluded one farm in and one farm out agreement.

  • Valhalla has concluded a farm in agreement with Island Oil & Gas plc ("Island") whereby Valhalla will acquire a 20% interest in the Island-operated Exploration Licence 4/05 ("Old Head of Kinsale" gas field) in the Celtic Sea, offshore Ireland. Drilling of appraisal well 49/23-2 is expected to commence during May this year using the Petrolia rig.
  • Valhalla and Island (its co-licensee and licence operator), have concluded an agreement whereby they will give Netherlands-based Oyster Energy ("Oyster"), a subsidiary of Horizon Energy Partners ("Horizon") the option to farm in for a 10% interest (pro-rata 6.15% and 3.85% respectively) in Island-operated Frontier Exploration Licence 1/04 ("Connemara") in the Porcupine Basin on the Atlantic Margin, offshore Ireland.

Old Head of Kinsale Farm Out Agreement

Under the terms of this agreement, Island will assign Valhalla a 20% interest in the Old Head of Kinsale gas field, reducing Island’s interest to 80%, in return for a cash consideration of Stg£2.040 million plus a 7.5% royalty, which will be determined by a number of factors including field performance.

Valhalla will immediately participate pro-rata in the upcoming appraisal well 49/23-2. Assuming a successful test, the partners would look to complete and tie-back both this well and the well 49/23-1 (successfully drilled in 2006) to the Kinsale platform next year with a view to producing first gas in the fourth quarter of 2008.

Connemara Farm Out Agreement Option

Under the terms of the Connemara farm out option, Oyster will have the exclusive option to farm in to 10% of Frontier Exploration Licence 1/04, pro-rata from Island and Valhalla, for a cash consideration. The option must be exercised prior to 31 August 2007. On exercise, Island’s equity would reduce from 61.5% to 55.35% and Valhalla’s from 38.5% to 34.65%.

Frontier Exploration Licence 1/04 covers Block 26/28 and part Blocks 26/27, 35/2 and 35/3 on the Atlantic margin and contains the Connemara oil field and several undrilled exploration prospects, 150 km offshore the west of Ireland in the Porcupine Basin.

An integrated subsurface study is currently being conducted by Horizon Energy Partners, which is key to determining the potential field performance and hence commercial feasibility of developing the Connemara Field.

Both agreements are subject to approval from the Irish Minister for Communications, Marine and Natural Resources.