The Esso/Hematite Yellowtall oil discovery is located about 80 km offshore in the Gippsland Basin. It is a small accumulation situated between the Mackerel and Kingfish oilfields. The oil is contained in Paleocene Latrobe Group sandstones, and sealed by the calcareous shales and siltstones of the Oligocene to Miocene Lakes Entrance Formation. Structural movement and erosion have combined to produce a low relief closure on the unconformity surface at the top of the Latrobe Group.The discovery well, Yellowtail-1, was the culmination of an exploration programme initiated during the early 1970's. The early work involved the recording and interpretation of conventional seismic data and resulted in the drilling of Opah- 1 in 1977. Opah-1 failed to intersect reservoir- quality sediments within the interpreted limits of closure although oil indications were encountered in a non-net interval immediately below the top of the Latrobe Group. In 1980 the South Mackerel 3D seismic survey was recorded. The interpretation of these 3D data in conjunction with the existing well control resulted in the drilling of Yellowtail-1 and subsequently led to the drilling of Yellowtail-2.In spite of the intensive exploration to which this small feature has been subjected, the potential for its development remains uncertain. Technical factors which affect the viability of a Yellowtail development are:The low relief of the closure makes the reservoir volume highly sensitive to depth conversion of the seismic data.The complicated velocity field makes precise depth conversion difficult.The thin oil column reduces oil recovery efficiency.The detailed pattern of erosion at the top of the Latrobe Group may be beyond the resolution capability of 3D seismic data.The 3D seismic data may not be capable of defining the distribution of the non-net intervals within the trap.The large anticlinal closures and topographic highs in the Gippsland Basin have been drilled, and the prospects that remain are generally small or high risk. Such exploration demands higher technology in the exploration stage and more wells to define the discoveries, and has no guarantee of success. The Yellowtail discovery is an illustration of one such prospect that the Esso/Hematite joint venture is evaluating.