In a drilling update, the company said it had encountered elevated mud gas and minor oil shows in the lower section of the formation over the gross intervals 2455-2470m and 2510-2535m.

Arc said it would examine the significance of these shows further.

“On the basis of interpretation of data obtained from the low resolution logging while drilling (LWD) tools, these intervals have indications of some hydrocarbon saturations,” the company said.

“Further analysis and a possible testing decision will await higher resolution and more complete logging data to be acquired at the end of the well program.”

Stokes Bay-1 is an offset well to the previous Valentine-1 well, which was plugged back after failing to encounter hydrocarbons in its primary target.

Arc recommended to the joint venture that it deepen the Stokes Bay well from its proposed total depth of 2589m to 2800m to test the Nullara level, which is the carbonate reef level that produces oil at Blina.

Only three of Arc’s partners – Emerald Oil & Gas, Pancontinental Oil & Gas and First Australian Resources – participated in deepening the well.

Empire Oil & Gas, Phoenix Resources and Indigo Oil decided not to participate.

However, while the company was drilling at a depth of 2755 metres it experienced heavy fluid losses, suggesting it had penetrated a porous and highly permeable interval.

Preliminary correlation indicates the losses occurred at or near the top of the Nullara Formation, some 86m shallower than at Pt Torment-1, Arc said.

Further losses prompted Arc to pull out of the hole, after which it will run logs and possibly a drill stem test to assess what fluids are present in the formation.

Once the company has finished at Stokes Bay-1, it will move south to drill the Valhalla and Utopia prospects and then across to the Yulleroo area to follow up on the gas encountered in Yulleroo-1.