Flow testing indicated the target McIvor Formation was of low permeability and likely to produce gas-cut water, they said.

L&M managing director John Bay told PetroleumNews.net his company was nevertheless pleased with the indications of thermally generated hydrocarbons in the well – the first time hydrocarbons had been encountered on the western side of the Waiau sub-basin.

“We decided to open-hole flow test the entire interval [a gross interval of 1073m to 1350m] but encountered only very minor flows,” Bay told PNN from Wellington this morning.

The test recovered gas-cut mud, with up to 13% entrained gas, and with low pressure build-up, with a maximum of 206psi.

“Before this well nobody thought there was mature source rock on the western side of the sub-basin but this well disproves that theory. If we had got these shows with Eastern Bush, in the middle of the basin, we would have been very excited.

“The results of Dean are encouraging for exploration of Beaumont Sandstone reservoirs in the area, where the joint venture is currently evaluating several potential prospects for drilling in 2008,” Bay said.

Government-owned Mighty River Power is earning a 50% stake in L&M’s deep wells by funding drilling costs.

Bay said that overall he was impressed with the results of L&M’s first drilling campaign since listing on the Australian and New Zealand bourses last January.

“We drilled three prospects and had strong encouragement from two and a dry, dry hole with the other. While we have not had any commercial flows, indications in two out of three prospects is pretty good in a frontier basin.”

L&M's first deep well in licence PEP 38226, Eastern Bush-1, helped the company gain a better understanding of the geology and the petroleum system in the basin.

The Beaumont Sandstone reservoir was more continuous and with better porosity than expected, he said.

The shallow Sharpridge Creek-3 – an appraisal well to the Sharpridge Creek-1 well drilled early last year – encountered sub-commercial residual oil shows as did Sharpridge Creek-1.

Bay said the company would now focus on evaluating the Sharpridge Creek and Te Anau areas, which was likely to result in further shallow drilling later this year and more technical work before deep drilling recommenced next year.