(Possible Offer) San Leon Energy plc proposes combination with Island Oil & Gas plc

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Introduction
San Leon announces that it has made a  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.  Island  is considering this proposal.  San Leon  is keen to hold a constructive dialogue with Island  with a view to working towards a recommended transaction.

Possible  Offer
  San Leon has put forward an indicative non-binding  offer for Island (the “Possible Offer”) on the  following basis:       

Based on the closing price per San Leon Share of 23.0p  on 14 October 2009,  the Possible Offer would value each Island Share at 10.0p and Island’s  entire issued share capital at £13.6 million.   The Possible Offer would represent a premium of approximately 31 per  cent. over Island’s share price of 7.625p at  the close of business on 14   October 2009.

Irrevocable  undertaking
San Leon has received an irrevocable  undertaking from Platinum Petroleum Limited (“Platinum”), the largest  shareholder in Island, that, if within three months of 14 October 2009 San Leon  was to make an offer for Island on the above basis or upon terms which represent  a greater number of San Leon shares per Island share or otherwise on improved  terms, Platinum would accept or procure acceptance of such offer in respect of,  in aggregate, 25,000,000 Island Shares representing approximately 18.4 per  cent. of Island’s issued share capital.

The irrevocable undertaking will cease to be binding  if an offer or proposed offer (a “Higher Competing Offer”) is made by someone  other than San Leon for the entire issued share capital of Island,  the making of which is not or has ceased to be subject to any pre-condition,  and which represents an improvement of 30 per cent. or more on the value of the  Possible Offer and San Leon has not made or announced a firm intention to make  a revised offer on terms substantially equal to or better than those available  under the Higher Competing Offer by the date 5 business days prior to the  closing date of the Higher Competing Offer.

Strategic  benefits of a combination
San Leon believes that there is compelling strategic  fit between San Leon and Island (together the  “Combined Group”).  San Leon already has extensive  knowledge of certain of Island’s assets: its two Moroccan onshore assets (the  Tarfaya area and Zag basin), its recently acquired Moroccan offshore assets at  Sidi Moussa and Foum Draa and the Netherlands offshore Amstel Field in which  each of San Leon and Island has a royalty interest.  San Leon also has good working knowledge of a  majority of Island’s Celtic Sea assets and Atlantic Margin assets and would  undertake a strategic review of Island’s  Albanian assets following a combination.

San Leon believes that the Possible Offer should  provide Island Shareholders with an opportunity to share in what San Leon  believes to be significant value upside in the Combined Group’s prospects.

San Leon expects the benefits of a combination to  include:  

• The resources to develop the potential of Island’s  Celtic Sea assets from a position of strength

San Leon believes that as offshore gas production from  the Kinsale field in the Celtic Sea declines, the opportunities presented by  surrounding fields such as Island’s Old Head of  Kinsale (Part Block 49/23) and Schull Field (Block 57/2) as they come on stream  will become increasingly viable.  The  Combined Group’s greater financial, technical and operational resources should allow  the Combined Group to retain and develop these fields and create potentially  valuable opportunities for a future Celtic Sea Gas Storage business;  

• An opportunity to apply the skills of San  Leon’s management team to Island’s assets, combine  the technical skills of the two teams and realise efficiencies

San Leon has an experienced management team with  extensive exploration and development capabilities which could be applied to Island’s assets.  A  transaction would also combine the skills bases of the two companies allowing  cost savings to be achieved and the combined portfolio to be managed and  developed more efficiently;  

• Extension of San Leon’s seismic programme  facility to Island’s prospects

San Leon has entered into an agreement with PGS  Ventures AS (“PGS”), a subsidiary of the Petroleum Geo-Services ASA Group,  whereby PGS would fund by way of a subscription for equity in San Leon at least  40 per cent. of the costs of its seismic programme.  San Leon believes that the extension of its seismic  programme facility to Island’s Irish Atlantic  Margin interests should realise savings and accelerate the development of those  assets;  

• Combination of two companies’ Moroccan  assets should offer enhanced returns

A combination of the two companies would result in the  Combined Group holding a 70 per cent. gross interest, before the participation  of ONYHM (the Moroccan Government-owned entity), in the onshore Zag and Tarfaya  interests in Morocco.  Philip Thompson, the Chief Executive of San  Leon, is very familiar with both assets in Morocco  having devoted a substantial amount of his professional life since 1999 engaged  in offshore and onshore hydrocarbon exploration projects in Morocco.  San Leon believes that the combined holding by  San Leon and Island of the Moroccan Zag and  Tarfaya assets should allow it to secure enhanced returns.

Speaking today, Oisin Fanning, Chairman of San Leon,  said:
      “We  believe the combination of our two companies would create a strong Irish based  oil and gas exploration and development business with the management skills and  financial resources to develop the asset portfolio to its full potential and  create value.

We believe the  terms we are proposing represent a fair basis for a possible combination and look  forward to engaging constructively with the Board of Island  with a view to consummating a recommended transaction.”

General
The making of any announcement of a firm  intention to make an offer is subject to the following pre-conditions:  

• San  Leon being granted access to conduct and complete limited confirmatory due  diligence (principally legal, commercial and financial due diligence) to its  satisfaction;    
• the  recommendation of the Board of Island as advised by its Rule 3 adviser and such  recommendation not being subsequently modified or withdrawn;    
• Island not selling or agreeing to sell or  otherwise disposing of any of its assets (including without limitation the  Celtic Sea assets) or acquiring further assets or entering into any other  contracts which are outside the ordinary course of business;    
• Island not agreeing to any further work programmes,  financial commitments or fiscal terms (whether by way of amendment, extension  or otherwise) in respect of any of its assets which are or would be material in  the context of Island’s existing cash  resources; and    
• no  determination being made that the proceeds of Island’s Overriding Royalty  Interest in the Amstel Oil Field will not repay Island’s  loan from Delta Hydrocarbons BV in full including interest and such loan not  containing any right to accelerated repayment on a change of control.

San Leon reserves the right to:  

• vary  the terms of the Possible Offer and to make an offer at any time with an  exchange rate higher or lower than 1 new San Leon Share for every 2.3 Island Shares  or with an implied value higher or lower than 10.0p per Island Share (taking  the value of a San Leon Share at the close of business on the latest  practicable date prior to the announcement of a firm intention to make an  offer);    
• vary  the form of consideration of the Possible Offer; and/or    
• waive any or all of the pre-conditions to  the making of an offer referred to above.

It is San Leon’s preference to implement any offer by  means of a Scheme of Arrangement but San Leon reserves the right to change this  to a general offer.  Any offer, if made,  would be subject to the terms and conditions usually attaching to a Scheme of  Arrangement, or offer, involving an Irish company and would also be conditional  on admission of the new San Leon Shares to trading on AIM.  San Leon reserves the right to vary the  conditions attaching to any offer or make any offer subject to additional  conditions or not to make any offer or not to announce any firm intention to  make an offer.

In the event of San Leon  announcing any firm intention to make an offer, appropriate proposals would be  made in due course to holders of convertible loans, or options over Island Shares.

Arbuthnot Securities Limited is acting as Financial  Adviser and Broker to San Leon. Fox-Davies Capital Limited is also acting as Financial  Adviser.

Sources and bases      

• Save  where otherwise stated, financial and other information concerning Island and San Leon has been extracted from published  sources or from San Leon’s management sources.          
• The  value attributed to Island’s issued share capital is based upon 135,926,678 Island  shares in issue as announced by Island on 7 August 2009.          
• The  stated share prices of San Leon and Island are  based on the closing middle-market price provided by the London Stock Exchange. 
 

This  announcement does not constitute an announcement of a firm intention to make an  offer under Rule 2.5 of the Irish Takeover Act 2007, Takeover Rules 2007 (“Irish  Takeover Rules”) and, accordingly, shareholders are advised that there can be  no certainty that any offer to acquire Island shares will be made even if the  pre-conditions are satisfied.  

Press  enquiries

San  Leon Energy plc                                                                             +  353 1291 6292
Oisin Fanning, Chairman

Arbuthnot  Securities                                                                     +  44 (0) 20 7012 2000
Nick Tulloch
James Steel
Andrew Fairclough

Public  Relations Advisers – Ireland                                                  +  353 87 242 9000
Paul White - White PR

Public  Relations Advisers - UK                                                    +  44 (0) 20 7861 3232
Dan de Belder / Rosanne Perry - Bell Pottinger

Qualified  person
Philip Thompson has over 25  years’ experience in the oil and gas industry. He has a M.Sc. in Geophysics  from Southern Methodist University and a B.Sc. in Geophysics from Texas A&M   University.

Rule 2.10 disclosure
San  Leon announces, in accordance with Rule 2.10 of the Irish Takeover Rules, that  at the close of business on 14 October 2009, it had the following relevant  securities (within the meaning of the Irish Takeover Rules) in issue:
320,993,004  shares (excluding shares held in Treasury). The ISIN reference number for these  securities is IE00B3CLK236.

Responsibility
The  Directors of San Leon (being Oisin Fanning, Philip Thompson, Paul Sullivan,  Charles McEvoy, Raymond King and Jeremy Boak) accept responsibility for all the  information in this press announcement.   To the best of the knowledge and belief of the Directors of San Leon  (having taken all reasonable care to ensure that such is the case), the  information contained in this announcement is in accordance with the facts and  does not omit anything likely to affect the import of such information.

Arbuthnot  Securities Limited, which is authorised and regulated in the United Kingdom by  the Financial Services Authority, is acting as financial adviser and Broker to San  Leon and no one else in connection with the contents of this announcement and  the Possible Offer and will not be responsible to any person other than San  Leon for providing the protections afforded to clients of Arbuthnot Securities  Limited, nor for providing advice in relation to the Possible Offer or any  matters referred to herein.

Fox-Davies  Capital Limited, which is authorised and regulated in the United Kingdom by the  Financial Services Authority, is acting as Financial Adviser to San Leon and no  one else in connection with the contents of this announcement and the Possible  Offer and will not be responsible to any person other than San Leon for  providing the protections afforded to clients of Fox-Davies Capital Limited,  nor for providing advice in relation to the Possible Offer or any matters  referred to herein.

This  announcement is not intended to, and does not, constitute or form part of any  offer, invitation or the solicitation of an offer to purchase, otherwise  acquire, subscribe for, sell or otherwise dispose of, any securities, or the  solicitation of any vote or approval in any jurisdiction, pursuant to this  announcement or otherwise.  Any offer  will be made solely by certain offer documentation which will contain the full  terms and conditions of any offer, including details of how it may be accepted.

This  announcement has been prepared in accordance with Irish law and the Irish Takeover  Rules and information disclosed may not be the same as that which would have  been prepared in accordance with the laws of jurisdictions outside Ireland.

The  distribution of this announcement in jurisdictions other than Ireland and the United   Kingdom and the availability of the Possible Offer to  shareholders of Island who are not resident in Ireland  or the United Kingdom  may be affected by the laws of relevant jurisdictions.  Therefore any persons who are subject to the  laws of any jurisdiction other than Ireland  and the United Kingdom or  shareholders of San Leon who are not resident in Ireland  or the United Kingdom  will need to inform themselves about, and observe, any applicable requirements.

Forward-looking statements
    This announcement contains statements about  San Leon, Island and the Combined Group that  are or may be forward looking statements.   All statements other than statements of historical facts included in  this announcement may be forward looking statements.  Forward looking statements often use words  such as "target", "plan", "believe",  "expect", "aim", "intend", "will",  "should", "could", "would", "may",  "consider", "anticipate", "estimate", "synergy",  "cost saving", "project", "goal" or  "strategy" or words or terms of similar substance or the negative  thereof.  Forward looking statements  include statements relating to future capital expenditures, expenses, revenues,  earnings, synergies, economic performance, indebtedness, financial condition,  dividend policy and future prospects of San Leon, Island  or the Combined Group.

These forward looking statements are not  guarantees of future performance.  They  have not been reviewed by the auditors of San Leon or Island.  These forward looking statements involve  known and unknown risks, uncertainties and other factors which may cause them  to differ from the actual results, performance or achievements expressed or  implied by such forward looking statements.   These risk factors and uncertainties are many and include, amongst  others, the possibility that the Possible Offer will not be successfully  consummated, that efforts to integrate Island into San Leon’s operations may  take longer, be more difficult or be more costly than San Leon currently  expects or that the Combined Group may not achieve the synergies and cost  savings San Leon expects to achieve.   These forward looking statements are based on numerous assumptions  regarding the present and future business strategies of such persons and the  environment in which each will operate in the future.  All subsequent oral or written forward  looking statements attributable to San Leon or any of its respective members,  directors, officers or employees or any persons acting on their behalf are  expressly qualified in their entirety by the cautionary statement above.  All forward looking statements included in  this announcement are based on information available to San Leon on the date  hereof.  Undue reliance should not be  placed on such forward looking statements. Subject to compliance with the Irish  Takeover Rules, San Leon does not intend, or undertake any obligation, to  update any information contained in this announcement.
 

Dealing  disclosure requirements
Any  person, who is a holder of one per cent. or more of Island Shares or of San  Leon Shares may have disclosure obligations under Rule 8.3 of the Irish  Takeover Rules, effective from the date of this Announcement.