Irish exploration company Island Oil & Gas has concluded farm- out agreements on two of its Irish offshore exploration operations.

The company has sold a 20 per cent stake in the Old Head of Kinsale gas field to Valhalla Oil and Gas for £2 million (€2.94 million), plus a 7.5 per cent royalty that will be determined by a number of factors including field performance.

Island's interest in the field has been reduced to 80 per cent.

Drilling of an appraisal well on the gas field is expected to start next month, the company said. If the test is successful, Island and Valhalla aim to link the well to the Kinsale platform, with a view to producing gas in the fourth quarter of 2008.

In a separate farm-out deal, Island and Valhalla have agreed to give Netherlands-based Oyster Energy, a subsidiary of Horizon Energy Partners, the option of taking a 10 per cent stake in its Connemara exploration licence for cash. The option, which must be exercised by the end of August, would reduce Island's equity in the field from 61.5 per cent to 55.35 per cent and Valhalla's from 38.5 per cent to 34.65 per cent. Island said it was engaged in additional farm-out discussions with other third parties as part of its overall farm out strategy.

"These farm-out agreements underline our strategy of accelerating key development projects through alliances with strategic industry partners," said Island's chief executive Paul Griffiths.

Island has interests in 11 Irish offshore licences and licences in the Netherlands and Morocco.