Oil Search advised the market on Friday that the Hides F1 (Hides Deep) well had reached total depth of 4633m. Thick argillaceous sandstone intervals were encountered in the exploration target, the Koi-Iange Formation; while Santos said "wireline evaluation confirms an absence of reservoir quality".

The exploration component of the well will now be abandoned and the development section completed as a gas producer for the PNG LNG project.

Exxon (36.8%) operates the permit with Santos (24%) and Oil Search (16.7%) also having operating interests, with PNG government entities taking up the remainder.]

Santos shares dropped 1% on Friday to $7.77, while Oil Search shed as much as 4.2% to $7.74. The pair have been trading places as who's ranked higher on the ASX, though Oil Search appears to be more resilient these days, with Santos announcing nearly $1 billion in losses for 2014 while Oil Search has been buoyed by a windfall of over $1 billion.

The result was not entirely unexpected and would not have immediate implications on the expansion of PNG LNG, though discovering gas right under the existing field feeding the LNG project means operator ExxonMobil and its partners could have potentially expanded the project with lower costs.

However, success on Hides Deep would have meant two years of appraisal drilling so was not in line as a gas source for the first expansion phase, an Oil Search spokesperson told The Sydney Morning Herald.

While ExxonMobil and Oil Search had already designated P'nyang to underpin a third LNG train at the project, analysts said Hides Deep's negative result still reduced options for gas feed for the PNG LNG expansion and made the task of finding gas resources slightly harder.

"We are still pretty confident that gas options will de-risk over 2015," RBC Capital Markets analyst Andrew Williams said.

"Does this make it harder incrementally? Yes, but there are still other options out there."