Kea Petroleum (LON:KEA), the New Zealand focused oil and gas explorer, has ramped up the anticipation surrounding its Beluga-1 well as drilling enters a critical stage. In an update, Kea said it had now set and cemented casing to below 3200m, in preparation for drilling ahead through the main target zones of the well, which should be reached by mid June.

Dr David Bennett, Kea’s chief executive, said: “We are pleased with progress to date. The drill hole is on target, on time and on budget. The next 800 metres are the crucial ones involving several target zones starting with the Tariki sands and concluding with the Kapuni.”

Work on Beluga-1 began on May 9 with the well being drilled from a site west of the Waitara River near the township of Tarata. In January 2010 Kea entered into a funding and participation agreement and a separate gas off-take agreement with Methanex New Zealand, a subsidiary of methanol supply giant Methanex Corporation. Under these agreements Methanex agreed to contribute up to US$10m to drill and complete the Beluga-1 well, in Kea's permit PEP 51155. In the event of a commercial gas discovery, Methanex has agreed to purchase and Kea has agreed to sell the gas under a 15-year gas off-take agreement.

Traditionally, gas discoveries in New Zealand’s Taranaki basin have been rich in condensates. At current prices a successful condensate rich gas discovery at Beluga could generate higher revenues from condensate sales than from gas sales. If that turns out to be the case, Methanex will receive a royalty on sales. Beluga's best estimate prospective resources as estimated by independent assessors from MBA Petroleum Consultants are 446 bcf with condensate yield of about 27 million barrels.

Progress at Beluga-1 follows news at the end of April that Kea had discovered oil in the first of its New Zealand wells, Wingrove-2, also in the onshore Taranaki basin. Preparations are currently under way to run casing as the first step in completing the well as a potential oil producer. Kea has been keen to make a big impact since joining London’s AIM market in February, when it raised £6m in a placing priced at 8p per shares. Yesterday its shares closed at 18.5p. The company is run by Ian Gowrie-Smith who, together with his co-directors at Rift Oil, delivered a…

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