Stage one of the program will see AGL invest $20 million in the Rodney Creek production pilot and another $17 million on the second stage, which involves an exploration and appraisal work program, to earn a 50% stake in ATP 529P.

The first stage is expected to start by November 2008 while the work program will be carried out in the 2010 and 2011 financial years.

AGL and Galilee, which is 68%-owned by coal miner Eastern Corporation, have also entered into a 10-year gas marketing agreement. AGL will also take over operatorship of ATP 529P.

ATP 529P is 80km northwest of the Barcaldine gas power station, which is linked by a gas pipeline to Moomba and Brisbane.

"This farm-in agreement is a further step in growing AGL's gas reserves through targeted exploration and appraisal drilling, utilising the skills AGL has developed as operator of the Camden Gas Project joint venture," AGL managing director Michael Fraser said.

Eastern Corporation managing director Campbell Smith said that with AGL involved in ATP 529P Galilee will now focus its capital raising to fund further exploration and development in its wholly owned ATP 799P.