The joint venture said wireline logging of the Cheal-A6 and its subsequent sidetrack Cheal-A6ST, which targeted a location about 150m to the south, indicated the productive sands were only about 2m thick, thinner than prognosed and sub-economic to complete and produce.

"We were pleased with proving that the oil-water contact encompassed a larger Cheal field area but very disappointed that the aggregate sand thickness in this location was too thin to be commercially produced," Austral chief executive Thom Jewell said.

"We remain confident in the ultimate upside potential of the Cheal field development and the greater Cheal play trend. We have built well appraisal failures into our overall planning and remain determined to bring success to the joint venture and shareholders."

TAG chief executive Garth Johnson said the JV was looking forward to better results at Cheal-A7 "where we are targeting the same Mount Messenger sand body as the A3 and A4 wells".

Had Cheal-A6 been successful, it would have added about 320,000 barrels of recoverable oil to the field's reserve and 250-350 barrels per day to its current production rate of about 420bpd.

The partners added that a new whipstock plug would be set in the Cheal-A6 wellbore and the Ensign Rig 19 will start drilling the second appraisal well, Cheal-A7, from the same surface location.

Meanwhile, Austral said that TAWN (Tariki, Ahuroa, Waihapa, Ngaere) field operator Origin Energy had shut down the nearby Waihapa production station temporarily, due to inadequate supplies of gas to the facility from other sources.

Origin has proposed the reinjection of residual Cheal gas, which is normally processed at Waihapa into one of its existing reservoirs to allow the Cheal field to continue producing at optimum rates.

Although neither Austral nor Origin specified which reservoir might be used for reinjection, it is widely understood it will be the nearly depleted Ahuroa field which Origin subsidiary Contact Energy plans to develop as New Zealand's first underground gas storage facility at a cost of about $NZ150 million ($A119 million) in the next two years.

Jewell said that access to markets for both Cheal oil and gas production was critical "so we maintain plans to support multiple contingencies".

Cheal is capable of producing up to 1 million cubic feet of gas per day.