Wellington-headquartered Austral this morning said drilling of Cheal-A6 had started yesterday.

Cheal-A6 is being directionally drilled from a surface location adjacent to the Cheal production facility and will drill through a secondary reservoir, the Miocene-aged Urenui sands, before hitting the primary target, the Miocene-aged Mount Messenger formation about 1000m to the west and at a depth of about 1750m.

Austral said that if the well was successful, it was modelled to add 320,000 barrels of recoverable oil and 250-350bpd to the field's current production rate of about 500bpd.

At current oil prices, of about $US130 per barrel, success with Cheal-A6 could increase production to about 800bpd and monthly field revenue to $US3.1 million ($A3.3 million) from the current $US1.95 million.

The Cheal-A7 well is scheduled to follow immediately after the drilling and completion of Cheal-A6.

Austral chief executive Thom Jewell said his company was making good progress on focusing on its core assets, increasing production and reducing costs.

Primary company debt had decreased from $US18.5 million at the end of 2007 to the current $US9 million, allowing Austral to take on additional debt to fully benefit from high world oil prices.

In addition, closing the hedging program initiated during 2006 at an oil price of $US65 per barrel, meant an increase in Austral's revenue from Cheal from $US0.68 million per month to $US1.4 million per month, as well as an increase in the margin from about $US40 per barrel to about $US105.

"In the success case, the A6 well and A7 wells will increase production and further increase the per barrel margin by making more efficient use of the new production facilities," Jewell added.

The Cheal partners are operator Austral (69.5%) and Canadian listed junior TAG Oil (30.5%).