The company is currently drilling out the 5.5-inch liner shoe at 2.196km and into the limestone formation.

Earlier a cement plug was set below the shoe of a 7-inch liner from 2km to 2.03km depth to stabilise the existing hole.

The well was then successfully drilled with a 7-inch bit to 2.2km. The 5.5-inch liner was then run down with the top of the liner at 1.89km.

The hole section confirmed the top of the limestone formation at 2.17km. InterOil now plans to drill ahead through the limestone interval with a 4.75-inch bit and then evaluate the reservoir.

InterOil has said previous wells in the area have experienced background gas, but this was no guarantee that there would be commercial hydrocarbons. The commercial viability of Elk-4 would not be known until it had been completed, tested and logged.

The Canadian-based company said the Elk-Antelope structure may need further geological, geophysical and appraisal work before a commercial confirmation of gas reserves.

The Elk-Antelope structure has current in-place contingent reserves of between 3.5-18.9 trillion cubic feet of gas.

Gas from the structure is planned to be used in Liquid Niugini Gas's liquefied natural gas project that aims to start production in 2012.

Recently PNG Petroleum and Energy Minister William Duma told Reuters the Government was meeting with Liquid Niugini Gas officials to discuss fiscal and technical terms.

Duma said the parties were "halfway through the process", but the Government did not yet have information on the gas reserves and was still waiting for the company to provide drilling results from its Elk and Antelope fields.

Liquid Niugini Gas is backed by InterOil, Merrill Lynch and Clarion Finanz AG affiliate Pacific LNG operations.