Exploration group Island Oil & Gas said yesterday it was on target to start drilling an additional well at the Seven Heads field in the Celtic Sea at the end of this month in the first stage of a £25 million (€36 million) drilling programme.

The drilling unit is en route from Scotland to the Celtic Sea and should be in place by the end of this month, said Jack McKinney, Island's commercial director.

On arrival it will drill a new well adjacent to the existing Seven Heads site to test the possibility of expanding the field. Island is funding the additional drilling in return for increasing its stake in the licence to 55.75 per cent from the current 12.5 per cent.

"This represents a major step forwards for the development of the company," said Mr McKinney, adding that if oil was found it would also be a great coup for the Republic.

The country is currently dependent on imports from the UK for its supplies.

The potential of the first well will be known within a month, when the drill will be moved on to the Old Head Kinsale site and to Donegal to drill two more wells.

Island, which in December raised £8.3 million through a share sale to fund expansion of the business, yesterday reported a narrowing of its first-half loss.

The Co Kilkenny-based group, which also has six other sites to explore in 2007, said pretax losses narrowed to £33,000 in the six months to the end of January, from £545,000 in the year-earlier period.

First-half revenue amounted to £476,000, compared with nothing in the year-earlier period, which was prior to Island becoming a gas producer with the purchase of a stake in the Seven Heads lease in October 2004.

For the 10-month period from the date of the acquisition through to the end of the group's financial year in July 2005, revenue was £484,000.