NGC will purchase, transport and process all gas from the Kahili field, in licence PEP 38736, and expects to take delivery of first gas in June or July.

The Kahili partners, operator Austral Pacific Energy (formerly Indo-Pacific Energy), listed Aussie company Tap Oil and International Resource Management Corporation, will own all the liquids and be responsible for their transportation to nearby storage facilities.

NGC yesterday said it would buy all gas from the field for the duration of its life and that was expected to be at least five Petajoules from the Kahili-1A-B discovery well. Further reserves were anticipated if more wells were drilled in the field that was discovered in November 2002.

"The execution of the Kahili agreements represents an important milestone in NGC's strategy to work with explorer-developers to develop smaller, previously uneconomic gas reserves," said NGC chief executive Phil James from Wellington.

"NGC continues to seek opportunities to facilitate the availability of new sources of supply for the New Zealand gas market, and to further develop its gas trading portfolio," he added.

Austral Pacific chief executive Dave Bennett was equally effusive.

"We are pleased to have achieved this further development, which will add value for shareholders in the company. The partnership with NGC is a good one and the synergies between us are excellent," he said from the Capital.

"The deal proves that small onshore gas fields in Taranaki can be a commercially viable proposition for all parties involved and finalising this agreement with NGC is an excellent start to Austral Pacific's upcoming drilling and production schedule," Bennett added.

NGC said it would construct, own and operate a separation plant and 12km of pipelines to process the raw wellstream products, and to connect the gas to existing NGC infrastructure in Taranaki, including the Kapuni gas treatment plant. The development cost of these facilities would be approximately $NZ8 million.

A 4km-long pipeline will deliver the raw wellstream products to the separation plant, which will include a skid-mounted separator, stabiliser and chilling equipment, and two condensate storage tanks. The separated gas will be transported to NGC's high-pressure pipeline via an 8km export line.

NGC said it had completed preliminary engineering and design work and has been consulting with affected landowners. Subject to gaining the necessary regulatory approvals, construction of the facilities should start next month and be completed by mid-2004.

It is known several Taranaki engineering firms _ from Transfield Worley and Plant & Platform, to Amtec Engineering and Independent Technology Ltd _ are all involved in various aspects of the Kahili development.

Initial field flows are expected to be 3-4 million standard cubic foot of gas and 120-150 barrels of condensate a day. After some months of production, consideration will also be given to drilling a second well and-or 'fraccing' Kahili-1A/B, to enhance production and revenues.

Austral Pacific also today announced that additional downhole pressure data had been obtained from the Cheal-1well, in onshore Taranaki licence PEP 38738, following extended production testing late last year.

"Analysis indicates that this well is only accessing limited gas reserves from within a few hundred metres of the wellbore. Oil reserves cannot be estimated, despite steady oil production during the test. A means of selling or disposing the gas will now be sought in order to enable long term oil production to continue," said Bennett.

During testing Cheal-1 produced an average of 50 barrels of oil and 500,000 cubic feet of gas per day.

Bennett said Austral Pacific had decided to drill a third well from the Cheal wellsite, deviating some 500m to the north, in order to test whether oil and gas pay extended across the Cheal structure, which wais mapped as covering an area of up to 8 sqkm.

"This well will also test the deeper Mt Messenger reservoir, in which oil was encountered in thin reservoir in Cheal-1, while a good Mt Messenger reservoir was encountered in Cheal-2. We are planning drilling Cheal-3 in February," Bennett concluded.