Operator Austral and TAG both said yesterday that the Cheal-A6 and A7 wells should be drilled and tied in to the production station, to enable the increased production from the wells to start before the end of year.

Both wells will target the main producing horizon at Cheal, the Miocene-aged Mt Messenger sands, with the first scheduled to spud about June 9.

The companies added that the agreement resolving the dispute about production station construction costs included a full and final settlement of all claims, a commitment to drill the A6 and A7 wells as a joint operation, and best efforts approach to creating a production joint venture operating agreement to guide future work programs.

The resolution includes a net payment to TAG subsidiary Cheal Petroleum of $US1.6 million ($A1.67 million) in a combination of cash, Austral stock and expected forward production from Cheal-A7.

In the event that Cheal-A7 is successfully completed for production, TAG will receive an additional $US250,000 ($260,700.

Austral will issue 2.273 million ordinary shares to TAG, with anti-dilutive protection provided for six months. In return, TAG has agreed not to dispose of these shares for 12 months.

In addition, Austral has agreed to pay TAG $NZ300,000 (about $A247,000) and TAG has agreed to pay its $NZ600,000 (about $A494,00) share of the remaining Cheal facilities costs that were withheld pending resolution of the dispute.

The companies further said they had agreed to undertake a common program of technical studies to support the drilling of the greater Cheal trend within the Cheal mining licence PMP 38156.

Austral holds a 69.5% interest in Cheal, with TAG holding a 30.5% stake.

Initial costs of developing the Cheal field were about $NZ25 million ($A20.6 million), though in April 2007 these jumped to about $NZ30 million ($A24.7 million), primarily because of changes to ensure the continuous, efficient production of the waxy Cheal crude at minimal operating cost.

There were upgrades to the pipelines linking the northern Cheal B wellsite to the A site production station so hotter fluids could be handled, as well as a gas pipeline from the production station to the nearby Waihapa production for Cheal gas and LPG sales.

Yesterday Austral chief executive and president Thom Jewell said he was pleased to have resolved outstanding issues relating to Cheal and to have the JV aligned for the upcoming drilling program.

"We are excited to be back to drilling. Future drilling targets have been identified and will be fully defined and prioritised through a comprehensive seismic processing, analysis and reservoir simulation project, which has also been agreed as part of the settlement," he said.

Jewell added that Austral's focus on increasing production and reducing costs through full utilisation of the Cheal production station was beginning to bear fruit. He believed the new wells were the next step for Austral to demonstrate added value from the Cheal, and nearby Kahili and Cardiff projects.

TAG chief executive Garth Johnson said the resolution meant the partners could now move to exploiting the "good potential for additional new pool discoveries" within the area.