A lack of gas is the most likely reason for ExxonMobil and Todd Energy pulling out of the Great Southern Basin, off Southland, say oil explorers.
The Government awarded the companies a joint permit to explore part of the basin in mid-2007.
The companies have been assessing the area and gathering seismic data.
Todd Energy said on Monday that the joint venture had surrendered its interest in the permit because of the high technical risk, which is made worse by the remote location and harsh operating environment.
But John Pfahlert of the Petroleum Exploration and Production Association says there's probably a bit more to it. Exploration results probably did not justify a further commitment of funds.
Todd Energy managing director Richard Tweedie says the joint venture has spent the past three years acquiring and evaluating state-of-the-art seismic data from the basin.
Mr Tweedie says it has decided the area has a high technical risk, which is made worse by its remote location and harsh operating environment.
He says the companies tried to bring on new partners to share the risk, but were unsuccessful.
Invercargill Mayor Tim Shadbolt says the decision is disappointing and he remains confident that there is oil in the basin.
Mr Shadbolt says Hunt Petroleum discovered it in the 1970s, but faced the same access problems.