"The well has encountered the primary objective Tournasian-aged gas sands some 400 metres up-dip from the intersection of the same sands in the Yulleroo-1 well," Arc said in a drilling report.

"The sands appear similar to those encountered in Yulleroo-1 with approximately 40 metres of potential gas pay.

"Wireline logs, pressure data and production test data are required to evaluate the reservoir potential of these sands."

Yulleroo-2 is targeting 474-928 billion cubic feet of gas. The Yulleroo prospect was originally drilled by a German company called Gewerkschaft Elwerath in 1967 and it flowed gas at 50,000 cubic feet a day on test.

Later analysis also indicated about 70 barrels of condensate per million cubic feet.

There is no doubt that gas is present and that Yulleroo is a big structure. The question is how much gas is in the field and whether Arc can find better reservoir quality than the previous well did.

As of yesterday morning, the well was at 3254m.

Arc said it was now aiming to drill ahead to the interpreted secondary objectives of the Laurel Limestones and the Famennian-aged carbonate interval, which is equivalent in age to the reefal limestone section encountered in the Stokes Bay-1 well drilled last year.

"This operation is expected to take another seven days, however hole conditions are causing some concern and a decision on the running of a liner to protect the section encountered to date and ensure the ability to drill to the deeper objectives will be taken as operational conditions require," the company said.