The company will earn its 20% working interest and 14.2% net revenue interest, by funding 20% of leasing costs and 25% of bringing the first well to production.

With a planned total depth of 6400m, the first well is estimated to cost a total of $US5.8 million ($A7.8 million) for a dry hole, with an additional $US2 million required to complete the well for production.

Aurora’s share of the well costs would be $US1.45 million, with an additional $US500,000 to complete the well for production. Aurora’s additional share of leasing costs will be $US450,000.

The well is expected to be spudded mid-year when high-pressure casing and a suitable rig becomes available, according to Aurora.

The company plans to reach the well’s total depth in 110 days from spud.

Aurora executive chairman Jon Stewart said the Sugarloaf Prospect has the potential to contain several trillion cubic feet of gas.

“Sugarloaf is a major un-drilled structure and represents an outstanding opportunity for Aurora to participate in a potentially company-making prospect in onshore USA, where gas prices are forecast to remain strong,” Stewart said.

“Initially, we considered that an interest of 12.5% was appropriate relative to our then (mid-2005) size and financial resources. We are very pleased to now have the opportunity to increase this position to 20% given the progress we have made over the past year and the quality of this Prospect.”

The Sugarloaf Prospect is a robust four-way dip closure, covering about 80 square kilometres at a depth of 5200m. Aurora said this means it is one of the largest onshore undrilled structures in the US.

The Sugarloaf Prospect is surrounded by several shallower oil and gas fields within a 25km radius. Most of these fields were discovered in the 1950s and 60s and contain total reserves of about 5 trillion cubic feet of gas and 100 million barrels of oil.

The fields are a combination of structural and stratigraphic play types predominantly in carbonate rocks at shallower levels than the Sugarloaf Prospect.