Development of the onshore Taranaki Cheal oil field is to start immediately, field operator Austral Pacific Energy announced today.
Total spending on the development of the field was expected to be around $25 million, with Austral Pacific's share of $9.1 million to be funded from cash reserves.
Austral Pacific holds a 36.5 per cent working interest in the permit, with the other joint venture participants being TAG Oil (NZ) and Arrowhead Energy.
Production from Cheal started this week at rates up to 300 barrels per day from initial, temporary, facilities that allowed continuous oil production from one well, Austral Pacific said.
The first oil from the field's permanent production facilities was expected to be available in the first quarter of 2007, with an initial production rate of around 1000 barrels a day.
Full production of around 1900 barrels a day from the field was expected from early in the second quarter of 2007.
The Cheal facilities would be capable of producing up to 2000 barrels of oil a day from the shallow Urenui and Mt Messenger formations.
An independent reserves estimate by an internationally recognised independent engineering firm estimated total gross proved, probable and possible remaining reserves as at December 31, 2005 of 4.4 million barrels oil for Cheal, Austral Pacific said.
To date more than 90,000 barrels of oil had been produced from Cheal as part of a long term testing programme, with negotiations continuing for the sale of oil produced at Cheal.
Austral Pacific chief executive officer Rick Webber said the decision to proceed was a significant milestone for the joint venture participants in general, and for his company in particular.
For Austral Pacific, the Cheal oil field development was the first step in establishing and growing a low cost, sustainable, oil and gas production profile.
Austral Pacific also said today it was anticipated that by the end of the year work could begin on finalising plans for optimum concept development of the Cardiff gas/condensate discovery in Taranaki.
Newly acquired 3D seismic would help identify the potential for sweet spots in the reservoir for future production wells, Mr Webber said.
Although gas had been produced at commercial rates from the upper McKee reservoir, the ultimate prize at Cardiff lay in the deeper K3E reservoir in which Austral Pacific held a 25.1 per cent share and was the operator.
"We believe we have a substantive gas resource in the K3E and that the reservoir will produce at commercial rates," Mr Webber said.
"We believe Cardiff is capable of producing a significant amount of gas for the New Zealand market at a time when demand is at an all time high."
Other participants in the Cardiff joint venture are TAG Oil (NZ), International Resource Management Corp and Genesis Energy, which has first right of refusal on all Cardiff gas.
In the year to December 31, Austral Pacific made a loss of US$2.4 million ($3.89 million), compared to a US$5.7 million loss in 2004.
Austral Pacific shares were up 15c to $2.40 around 11am today, having fallen to $2.25 yesterday after being at $4.40 a year ago.