“TAG will now not be drilling Kate-1, sole risked or otherwise,” TAG president Drew Cadenhead told PetroleumNews.net this morning.

“This was a difficult decision for TAG to make, but we felt it was inappropriate to drill the well when there was uncertainty relating to working interests in the permit. Drilling in these circumstances would have meant putting significant TAG shareholders’ funds at risk.”

Cadenhead said TAG had been planning to spud Kate-1 in licence PEP 38260 later this month.

But Green Gate has moved to cancel its agreement with TAG and revoke TAG’s authority to explore in the permit, claiming TAG was in default of its obligations.

“These claims are strongly disputed by TAG, which is taking legal advice and is considering its options,” Cadenhead said.

He said TAG had always been prepared to honour its obligations under the joint venture agreement and had already completed all necessary seismic work and arranged drilling contracts and pre-drilling construction work.

Green Gate managing director and sole shareholder Stacey Radford said his company had been “forced into this because of consistent non-performance” by TAG Oil.

He declined to comment further but said Green Gate would honour its obligations with Crown Minerals.

“As far as we are concerned, this well will be drilled but we are not sure when,” Radford told PNN.

Crown Minerals’ website says Green Gate, as 100% equity holder in PEP 38260, must commit to drilling Kate-1 by April 25 or surrender all or part of the 5200 square kilometre onshore-offshore permit.

In mid-2005, Tag said it would be earning up to a 70% stake in the onshore portion of PEP 38260 and taking over from Green Gate as operator.

It was to initially earn a 30% interest by acquiring about 50km of 2D seismic data over the 15sq.km Kate anticlinal prospect and had the option to earn an additional 40% interest by drilling Kate-1.

Kate was one of the most exciting prospects in TAG’s portfolio, with Cadenhead saying there was nothing better than seeing a big surface anticline with oil seeps.

But he says he cannot comment further on TAG’s South Island plans until this issue is resolved.

Last month, TAG and recently listed L&M Petroleum announced they were getting together to cut rig costs for their multi-well South Island exploration programs.

TAG said it planned two wells in the onshore Canterbury Basin – Kate-1 followed by Salmon-1, in PEP 38256.

L&M, which listed on the Australian and New Zealand bourses in early January, is planning up to four deeper onshore wells in the Waiau and Te Anau sub-basins of the western Southland Basin.

L&M chief executive John Bay told PNN from Christchurch this morning that the TAG-Green Gate dispute would not affect his company’s exploration program, with the first well, Eastern Bush-1 in PEP 38226, still scheduled to spud in early April.

“Though we are still finalising a rig contract, and will have to mob and demob the rig ourselves, this should not affect the timetable of our scheduled drilling program.”