Austral Pacific Energy Ltd. reports the upcoming drilling of the A6 and A7 wells in the onshore Taranaki Cheal Oil Field (PMP38156-01), Stratford, New Zealand.

The new wells will target the same shallow oil producing Mt Messenger sands that are currently generating substantial revenue for the Cheal Joint Venture. It is anticipated that successful drilling will result in completion and tie-in in time to deliver increased oil production prior to year end 2008. The Joint Venture has also reached agreement to undertake a comprehensive programme of technical studies to support the drilling of the Greater Cheal Trend.

The agreement to drill the wells is part of an arrangement between the Cheal Joint Venture Parties to resolve disputed costs related to the construction of the Cheal Production Station. The agreement includes a full and final settlement of all claims, a commitment to drill the A6 and A7 wells as a joint operation and best efforts approach to creating a production JVOA (Joint Venture Operting Agreement) to guide future work programs.

The resolution includes a net payment to Cheal Petroleum Limited (a subsidirary of TAG Oil Limited) of $US1.6 Million in a combination of cash, Austral stock and expected forward production from the A7 well. Subject to TSX-V approval, Austral will issue 2.273 million ordinary shares to TAG with anti-dilutive protection provided for a period of six months and in return TAG has agreed not to dispose of these shares for a period of twelve months. In addition Austral has agreed to pay TAG NZ$300,000 and TAG has agreed to pay its NZ$600,000 share of the remaining Cheal facilities costs that were being withheld pending a resolution to the dispute. In the event Cheal A7 is successfully completed for production, TAG will receive an additional US$250,000 payable in equal instalments over twelve months.

Commenting on the agreement to drill the wells, Austral CEO and President, Thom Jewell said, "We are pleased to have reached resolution on this issue and to have the joint venture aligned on the upcoming drilling program. We are excited to be back to drilling.

Future drilling targets have been identified and will be fully defined and prioritised through a comprehensive seismic processing, analysis and reservoir simulation project, which has also been agreed as part of the settlement."

The Company's stated focus on increased production and reduced costs through full utilisation of the world class Cheal production station are beginning to bear fruit. Mr Jewell believes the new wells are the next step for Austral to demonstrate added value from the Cheal, Kahili and Cardiff Projects.

Tags: Austral Pacific Energy Ltd.