The South Australian licence covers 240 square kilometres of the Penola Trough, a proven petroleum system.

"PEL 27 is north-west and updip of the adjacent Katnook, Haselgrove and Ladbroke Grove gas fields and is ideally positioned to trap oil and gas migrating northwards out of the trough," Essential Petroleum said.

"The permit is particularly prospective for oil - Sawpit-1 recovered oil and Killanoola DW-1 flowed oil to the surface."

Exploration in PEL 27 will begin with the drilling of the Cowrie prospect.

"Cowrie is a robust structure similar in style to the Killanoola oil discovery," Essential said.

"It offers improved reservoir and oil quality, and an excellent seal. Cowrie 1 is expected to be drilled between May and September this year as part of a forthcoming multi-operator drilling program in the Otway Basin."

Essential Petroleum said Cowrie could contain up to 4 million barrels of recoverable oil. A discovery at Cowrie would also confirm the Sawpit Sandstone as an exciting new target and give Essential Petroleum immediate other opportunities along the northern flank of the Penola Trough, the company said.

Beach now has a 30% in the South Australian licence, with Origin Energy Resources Ltd holding the remaining 50%.

An overriding royalty of 0.75% of the well head value of any hydrocarbon production is payable to Cluff Resources Pacific NL, a former permit holder.