Exploration manager Eric Matthews said he was delighted that NZOG had entered into an agreement with New Zealand Overseas Petroleum Limited, a subsidiary of Transworld Oil, for the funding of part of the drilling cost of the company's high-potential Tui prospect in permit PEP38460.

"I am over the moon that we have finally a deal. Two things needed to happen before we could drill Tui; there needed to be rig in the area and we needed another partner. Today we have both," Matthews said from Wellington.

Transworld will acquire half of NZOG's interest in the permit, leaving NZOG with a 20% equity interest in the Tui well. It is expected that the various contractual and regulatory procedures associated with the agreement will be in place shortly.

The agreement provides for the Tui well to be drilled by the semi-submersible rig Ocean Bounty, which arrived in New Zealand last week and is presently drilling the Pohokura-3 well 12km off the north Taranaki coast.

Matthews said Transworld was a private company which owned and operated a Louisiana refinery in the United States and seven platforms in the Gulf of Mexico. "Now they are really making a move to go international."

Transworld staff hadn't really heard of New Zealand, its energy industry or hydrocarbon basins until Matthews approached the company earlier this year on the recommendation of a Houston geologist.

Several NZOG and Transworld staff visited New Zealand some weeks ago, including inspecting New Plymouth and its extensive service sector.

Transworld was impressed by New Zealand's great prospectivity, particularly that of the Taranaki Basin, said Matthews.

NZOG, which acts as operator for licence PEP 38460, and its partners have been trying to drill the Tui prospect for about a year. Now the Tui-1 well is expected to spud in February and to take some 30 days to reach a total depth of approximately 4000m.

The Tui prospect's main target is the Kapuni D beach sands at approximately 3400m depth. At Tui, the D sands closure is thought to be a remnant of an originally much bigger closure that hosted an oil accumulation extending over both Maui and Tui. This hypothesis is consistent with oil found in the D sands at Maui B, which may also be a remnant of the larger original oil accumulation. It is thought Tui has not been affected by the late uplift and faulting that probably caused much of the oil in the original pool at Maui to escape. The cumulative potential of the D sands is estimated at 700 million barrels of recoverable oil.

Secondary objectives include the Moki Formation at around 2400m, with 400 million barrels potential, and the Kapuni F sands at 3800m with 50 million barrels potential.

Matthews said he was hoping for better results from Tui-1 than from Hochstetter-1, which was drilled almost three years ago by the Ocean Epoch, another Diamond Offshore Drilling rig, in a different part of PEP 38460. NZOG and partners plugged and abandoned Hochstetter-1 after only poor hydrocarbon shows.