Kea Petroleum (KEA) found favour with investors on Monday after...

Kea Petroleum (KEA) found favour with investors on Monday after announcing it has spudded its Beluga-1 well in New Zealand.

Shares in the AIM-listed group jumped almost 9% to 18.75p as it said it expected to reach its target depth of 4,000 metres by the end of June.

The group, which joined the bright lights of the London Stock Exchange in February, entered into a funding and participation agreement and a separate gas off-take agreement with Methanex New Zealand at the start of the year to help fund its drilling programme.

Under the terms of the deal, Methanex will contribute up to $10 million to drill and complete the well which is based on the PEP 51155 permit to the west of the Waitara River.

Should the well prove a commercial gas discovery, Methanex has agreed to purchase the gas under a 15-year off-take agreement.

"Hydrocarbon gas seeps are observed nearby in the river," the group said in a statement today, "and it is possible that Beluga-1 may also intersect hydrocarbons at levels shallower than its primary Tariki sandstone target, namely in sandstones of the Mount Messenger Formation and in the Tikorangi Limestone, as well as in the deeper Kapuni Formation."

The New Zealand-focused company has a mid range estimate of 500 billion cubic feet of gas and 20 million barrels of condensate which it believes could be enough to fully meet the demands of Methanex's New Zealand operations.

Fortunately, the well lies just 20 kilometres from the Methanex production facilities and just six kilometres from the gas pipeline.

If Beluga-1 proves successful, Kea said the pipeline link to a nearby production station could be commissioned and operational within a year from its commitment.

Today's announcement follows on from last month's oil discovery at its Wingrove-2 well in the onshore Taranaki Basin.

The well, which was drilled to a depth of 1,630 metres, encountered oil pay between 1,100 and 1,300 metres. In addition, very high levels of hydrocarbon gasses were encountered, suggesting that oil lies beneath 1,450 metres.

Kea will carry out further production testing within the next six months.