The Wellington-headquartered company said it would assume a $US17.8 million ($A18.72 million) debt to its bankers as a consequence of this "crystallisation" of the hedges, which involved 23% of its proved and probable reserves from the Cheal oil field onshore Taranaki, New Zealand, or about 2.6 million barrels of oil and 1.8 billion cubic feet of gas.

It will take a loss of about $US8 million dollars on this hedging during the second 2008 quarter, as well as the almost $US9.1 million of unrealised losses that were recognised in the fiscal 2007 year ($US7.3 million) and in the first quarter 2008 ($US1.77 million).

Austral chief executive Thom Jewell said the $US65 per barrel hedge of 2006 was a prudent decision, "but it is now important to close out this facility and capitalise on today's oil price".

A recent independent reserves report on Cheal by Canadian independent consultants Sproule International, gave the field's 2P (proved and probable) reserves a before-tax NPV10 value of $US72.25 million, up from last year's estimate of $US38.85 million.

"Removing the hedge is a powerful tool because it allows the company to leverage unprecedented oil prices at a time when we anticipate increased production from the upcoming two well drilling program," Jewell said, referring to the additional production wells planned for Cheal, the first of which is due to spud next Sunday.

He added that recent oil price spikes would also greatly benefit Austral in regards to the remaining 77% of its unhedged Cheal reserves.

Austral had also purchased future price options at $US90 per barrel to protect a portion of future Cheal production revenue against a significant fall in future oil prices.

Jewell said this protection covered about a year's production.

"The company is now well positioned to reap the benefit of immediately increased revenue from existing and expected production," he added.

The Cheal partners are operator Austral (69.5%) and Canadian listed junior TAG Oil (30.5%).

Meanwhile, Jewell said Austral was reducing its primary debt facility from $US14.45 million to $US6.5 million by using the proceeds from the sales of its Papua New Guinea assets.

Earlier this year Austral announced it was selling its interests in PRL 4 and PRL 5 to Horizon Oil for about $US3.5 million. Last month the company said it was selling its stakes in PPL 235 and 261 to partner British company Rift Oil for about $US5 million.