"Since the last update it was determined that the perforating guns had failed to function and the drill stem test equipment was retrieved from the cased hole to establish the reason for the failure," the company said.

"Subsequent to the successful retrieval of the test string and confirmation of the failure of the guns, the Century 18 drilling rig suffered damage during routine testing of the BOP equipment.

"Arc has now terminated the drilling rig contract for operational performance reasons. Investigations into the incident are underway."

Interpretation of logs over the primary objective Tournasian Sands in Yulleroo 2 indicate the presence of a total interval of 170m of interbedded sands and shales with the four main sand zones covering 60m, with about 30m of net potential gas-bearing sands, according to Arc.

"These sands were encountered at a depth of approximately 2850 metres, some 400 metres updip from the correlative Tournasian Sands which flowed gas during testing in the Yulleroo-1 well," the company said.

Yulleroo-2 is about 2.5km east of Yulleroo-1.

"Following the release of drilling rig, the well will be suspended and a review of the available testing options will be carried out," the company said. "These include using a coiled tubing unit or workover rig."

Timing of the test will be dependent on operational conditions and equipment availability, according to Arc.