Hi Mark, it will be difficult to blend that because your hole is tracing out a fairly different shape than the surface shape.

If you make the hole to be closer in shape to the surface that will help to make a planar sections blend work better, see the attached file for an example.

- Michael

Mark,
The other issue is that the shapes are quite close together and the upper shape is offset (not centered on) from the lower shape, as viewed from above. For edges this different, that makes a smooth transition very difficult; as you can see.
Ron

Thank you guys, you helped me a lot.
The hint with bringing the shapes closer together and centering them out a bit is good. Although I haven't changed the shapes a nice blend without intersections could be made.