"Poor sand quality encountered at Willaroo-1 and the likelihood that these sands were damaged during drilling operations mean that there is no prospect of using the Willaroo well for future operations," managing director Barry Smith said.

"However, the existence of oil trapped in the Willaroo structure has proved that a petroleum system operates in the southern region of the Bowen Basin."

A drill stem test on oil shows encountered while drilling the primary reservoir sequence last week recovered 2-4 barrels of oil, emulsion and mud, the company said.

Smith said Orion's future technical efforts will now be focused on finding improved reservoir development in the Willaroo area and in nearby prospects.

Willaroo-1 is the first well in Orion's exploration program in NSW and is immediately north of proven gas reserves near Narrabri.

The company is also planning to drill the next well, Nyngynderry-1, in the Darling Basin in northwestern NSW later this year.