Yesterday afternoon, after markets in Australia closed, Falcon (30%) said while drilling the horizontal section of the well operator Origin (70%) experienced "operational challenges" and was unable to keep the well hole clean and stable.
The big-budget Kyalla 117 N2 is the first of two wells the joint venture plan to have drilled by the end of this year, targeting the Kyalla shale liquids gas play in exploration permits EP117, EP76, and EP98.
With the horizontal section of the well, considered unstable, the JV has been forced to plug the section in line with regulations.
Origin will drill a sidetrack and attempt to drill a new horizontal production hole section.
The stability concerns come just a month after Origin completed vertical drilling of the well.
This morning Origin quickly released a statement saying the sidetrack would not "result in a material increase in cost" but did not release a figure what overruns would be.
However, Falcon CEO Philip O'Quigley said the companies remained "optimistic" despite the problems encountered.
"Whilst it is unfortunate to have encountered these operational difficulties, which will add to the time and cost to drill the horizontal section, the joint venture remains optimistic about the potential of the Kyalla and we look forward to updating the market with further updates in due course," O'Quigley said.
The Kyalla appraisal well has attracted analyst attention for some time, with consultancy firm EnergyQuest putting it at the top of its "wells to watch" list for this year.
"The wells… will go a long way to establishing whether the hype about the Beetaloo is justified. There is plenty of scepticism, due in part to disappointments with unconventional exploration in other Australian onshore basins," EnergyQuest said in June last year.
EnergyQuest's excitement was echoed by the Northern Territory government, which said in October that Origin's eagerness to drill the well marked a new era of investment for the Top End.
Meanwhile, the industry lobby body, the Australian Petroleum Production and Exploration Association said the well would play a "vital role" in the future of the Beetaloo.
However, campaigners from both Lock the Gate and the Northern Territory Protect Country Alliance have responded to news that the horizontal section of the well is unstable, labelling Origin's drilling "dodgy" and claimed the operator was not fully aware of the risks.
"The public deserves more information about what has actually taken place than the scant detail included in Falcon's statement," NT Protect Country Alliance spokesperson Graeme Sawyer said in a joint statement released this morning.
"A halt on all activity and a full investigation of this incident should now be required by the NT government until all the issues are made clear."
"Origin Energy and Falcon's blind fervour to fracc the Northern Territory could lead to more serious environmental harm as drilling and fraccing problems continue in the future," Sawyer said.
Last year Origin and Falcon faced severe backlash from pastoralists and environmental campaign group Lock the Gate.
In November Lock the Gate and several pastoralists condemned the NT government for not passing land access agreement legislation which would require oil and gas explorers to reach an agreement with pastoralists before accessing leases.
Origin also faced unprecedented pushback from minority activist shareholders at its annual meeting in October, such as the Australasian Centre for Corporate Responsibility.
Separately Bullwaddy Pastoral Company took Origin to court over drilling plans arguing the joint venture had not conducted thorough consultation with stakeholders. The case was withdrawn from the Supreme Court after a meeting between the two parties.