Drilling reports from yesterday indicate that the Dongara/Wagina section was not encountered, following the company's expectations. The Hovea-2 well is designed to test deeper onshore prospects highlighted by the offshore Cliff Head discovery, before it reverts back to the main objective of testing the Hovea-2 oil discovery.

Last Friday Arc called for a trading halt to dampen speculative trading as the target nears. The trading halt is continuing. Larger partner Origin remains trading at around $3.33,slightly weaker. Arc's last trade was at 51c.

While not definitive, encouraging gas shows have been encountered in the secondary objective, the Irwin River Coal Measures, the significance of which will be evaluated by wireline logs, according to Arc Energy.

Arc said after completion of the logging and evaluation program, a decision will be made on the forward program over the next few days.

Analysts remain optimistic. "Everything is going to plan. As planned they didn't encounter the Dongara/Wagina but have encountered encouraging gas shows at the bottom. Everything looks like it's on track," said Ollie Foster, research analyst at Perth brokerage house Euroz Securities.

"By testing the secondary targets first, they can get some decent well control and have a far better idea of the geology by the time they hit the primary oil target," he said.

The primary target is expected to be reached within the next 10-14 days.