KEY POINTS:
A recent earthquake has brought traces of crude oil to the surface on Stewart Island, strengthening prospects of a significant oil discovery in the nearby Great South Basin offshore area.
Several natural oil seepages have been detected behind the beach at Thule Bay, said Ministry of Economic Development
chief petroleum geologist Richard Cook.
The ministry had been monitoring the area, where seepages had been detected years earlier, for some time but found no fresh activity until after the magnitude 4.8 quake last month.
"We are encouraged the latest information strengthens the case for exploration in the area."
While the seepages did not indicate any particular size of oil deposits "the fact that natural oil has been generated out in the basin and seeped up there is encouraging".
"It's just reinforcing the fact that there's oil potential and not just gas."
Crown Minerals has said the enormous potential of the basin, southeast of Dunedin, is "commonly acknowledged" and may even support the large-scale infrastructure needed to produce liquefied natural gas.
It believes the basin may hold more than 5 trillion cubic feet (TCF) of gas, far outpacing the Maui field with 3.5 TCF.
The Government is asking for tenders, offering 40 blocks over 9000 square kilometres in the basin to oil and gas explorers.
The tenders close on April 2 and, despite the relative expense of drilling in such deep and often stormy waters, Mr Cook said several major overseas explorers had shown "significant interest".
Eight wells were drilled in the basin between 1976 and 1984, with hydrocarbons recorded in four.
At the time, water depth and the isolation made gas reserves in one well "non-commercial" and mechanical problems meant that strong oil shows in another were not properly tested.
Mr Cook said the Stewart Island seepages indicated shallower areas around the margins of the basin might also be worth investigating.
With the tender process expected to be completed by mid-year, it would be three or four years before exploratory drilling began.
If significant reserves were found, it could take between 15 and 20 years before gas or oil started flowing in commercial quantities.
However, Mr Cook said an exploration programme would give the area an economic lift.
Black Gold
* Government geologists say the discovery of oil traces is good news for an oil and gas exploration programme in the nearby Great South Basin.
* Drilling is likely to begin within three to four years.
* Any significant discovery is likely to take 15 to 20 years to develop.