The Perth-based company said the well, at a site 2.5km southwest of the town of Diebling, has to date intersected 4m of net coal in a packet known as Veine-1 at a depth of 964.7m.

In addition, European Gas said initial gas desorption analysis had returned “highly encouraging gas content values”.

“The company is considerably encouraged by the positive preliminary data emerging from the drilling operations,” it said.

“Veine 1 represents a potentially significant target for development demonstrating good thickness and strong desorbable gas contents.”

Currently at a depth of 1030m, the well is expected to intersect at least three more gassy coal packets before it is drilled ahead to a total depth of 1500m.

European Gas said the two-well program was in preparation for the development of the large gas-in-place resource, which to date totals 28.1 billion cubic metres (991.2 billion cubic feet), in about 7% of the company's permit and application areas.

Appraisal drilling is scheduled to begin in the first half of this year.