Valhalla-1 is about 150km southeast of Derby, Western Australia and 47km north of the Noonkanbah community.

On Friday, Arc said that oil fluorescence had been recorded in interbedded sandstones and claystones over multiple intervals.

“The presence of oil shows from 110 metres to 925 metres is very encouraging and confirms that hydrocarbons have migrated to the Valhalla structure and through the Tullock Nose,” the company said.

“Further evaluation will be required to assess the commercial significance of these shows.”

Despite the presence of oil, Arc said the well had not encountered any associated gas readings.

Arc plans to determine the significance of the oil shows, once all formation evaluation and wireline logging is complete.

Valhalla is the second major play type to be tested in Arc’s regional drilling program.

Elsewhere in the basin, the company has suspended operations at its Stokes Bay-1 well, due to heavy rainfall.

Swabbing of the Nullara Formation, which has so far recovered 29% of the lost drilling fluids, is expected to resume when the weather permits.

Arc Energy executive director - operations Gary Jeffery says Stokes Bay could yet prove to have commercial quantities of hydrocarbons as the tests will be updip of promising shows from the Valentine-1 well.

"Testing is continuing in the Nullara Limestone," he said.

"A subsequent decision on testing the Anderson sands which are behind casing is yet to be made because it depends on the result of the Nullara test. A commercial flow from the Nullara would likely result in the well being put on production."