20 per cent chance of viable oil in the Bay

Oil company Apache says it has a 20 per cent chance of finding oil in commercial quantities in Hawke's Bay.

Apache has entered into a joint venture with Tag Oil, which has extensive exploration permits onshore in the East Coast Basin.

Apache has agreed to spend $100 million to explore and appraise the potential development programme in return for a share of any profits.

The work is planned to take place over the next four years with seismic surveying already under way.

Apache senior project adviser Alex Ferguson said the company had received permission from most land owners and local iwi had been consulted.

A commercial oil or gas find on the East Coast would be a major shift for the Taranaki-based petroleum industry.

Consultant geologist David Francis said Apache's 20 per cent assessment was above the industry norm of 10 per cent, helped by Apache's experience and new technology.

"Apache is bringing a whole new technique to New Zealand, which is to explore shale reservoirs as well as the conventional sandstone," he said.

"The shale formations in the East Coast Basin are very similar to those that produce oil and gas in North America."

Ferguson said the next stage of the exploratory mapping phase will be the detonation of small charges in 12-15m holes in January, with the resulting data recorded for analysis.

"We are keen to know if there is oil there - can we unlock the secrets 2km down. We're looking for something between 2000m and 3000m because the pressure will be pretty good," he said.

Deep under the surface are deposits of carbon-rich mudstones, which generate both gas and oil. There are hundreds of naturally occurring gas and oil seeps visible on the surface.

From the beginning of the last century to the late 1980s a hospital near Gisborne was heated using seeping natural gas.