TAG Oil may walk away from its Ngapaeruru-1 well without fracking, says chief executive Garth Johnson.
On Tuesday TAG announced it would perforate and production test the well, to see if hydrocarbons moved from source rocks, "a critical step to pursuing the economic viability of this unconventional play".
"We have not planned any fracking operations and have not applied for a consent to do so," Mr Johnson said. "At the present time we still don't know if fracking will be necessary and/or if it would help us understand the potential to realise oil and gas production and reserves in the East Coast Basin.
"We are learning a lot every day but at the current time we do not know if fracking is a viable option for Ngapaeruru-1."
Fracking, the stimulation of a well by injecting sand-bearing water into the source rock to crack it and keep the cracks open, is controversial due to environmental concerns over chemicals added. Fracking requires resource consent from the Horizons Regional Council, which TAG has not applied for.
"We are doing a lot of work now using the data we acquired while drilling and logging Ngapaeruru-1 but we still may not be in a position to support the cost of a well stimulation. To do so we will need to have a very clear understanding of whether fracking can help us develop a commercial operation, even a small one initially, to test the concept of longer-term production in the East Coast. However, we really need to perforate the well and then make some decisions. If we don't feel there is a reasonable chance of a successful commercial operation we would not invest additional funds to stimulate the well."
The perforation will happen in the next three to four months and it was likely at least one more well would be drilled on the East Coast "prior to deciding if further steps are required".
"As we have said in the past, this is a methodical, well-thought-out programme in a frontier oil and gas basin that will take many years before we can say with any confidence if a commercial oil and gas play is possible."
Don't Frack the Bay spokesman Paul Bailey said his group was unfamiliar with the practice of perforation, but believed fracking was the only way oil and gas could be commercially extracted from Hawke's Bay.
"We are disappointed they are going to proceed," he said.
Tararua Mayor Roly Ellis said as long as TAG "obeyed the rules" and kept everyone well informed "council doesn't have a problem with it".
"It bring a certain amount of jobs to the district, especially to Dannevirke, in all sorts of ways," he said.