NZOG owns 15%, equivalent to 35.4 petajoules of Kupe gas reserves and 2.4 million barrels of oil, and Genesis currently owns 31% of the Kupe oil and gas field. NZOG will separately deal with its share of oil/condensate production.

On announcing the deal, NZOG chief executive Tony Radford and Genesis chief executive Murray Jackson said the agreed terms represent another major step for the Kupe development.

“With the majority of the Kupe partners having reached agreement on their gas sales arrangements, the fast-track development of Kupe is on schedule to deliver gas in the first half of 2007.”

Radford added that agreement with Genesis on the key commercial terms represented a major step for NZOG as a company.

"The price set for our gas reflects the current high levels of demand for this energy source, while securing of finance for NZOG's share of the development by this method will avoid the substantial costs often associated with this type of project finance from conventional banking sources."

Both parties have agreed to speedily conclude negotiation of a formal binding contract.

NZOG discovered the Kupe field in the late 1980's although field development was delayed due to low gas prices until last year when a major downwards revision of Maui gas reserves was announced, leading to a rapid and substantial increase in gas prices.

A formal decision to develop Kupe is scheduled for June next year. In the meantime, the partners in the project are moving rapidly through the engineering and consenting process.

Transfield Worley has finished the pre-FEED study and narrowed the development timetable and development options.

The preferred development option was a platform in the central part of the mining licence, to tap the Kupe South structure, but with upside potential from the Leith, Stent, Derby, Marshall and Toru prospects.

The field was scheduled to deliver about 20 PJ per annum from the first half of 2007. A multi-phase pipeline or twin pipelines would take product from the unmanned platform, which would have either marine or helicopter access, to shore near Tangahoe in south Taranaki. At present a single pipeline and helicopter access was preferred.

Some onshore processing could be done by the Kupe partners or the raw petroleum stream sent to any of the nearby Rimu or Waihapa (Swift Energy owned), or Kapuni (Todd Energy) production stations,