Co-venturer Pancontinental Oil and Gas said that Arc as operator was yesterday pulling out of the hole to run a completion string.

In the past week, casing has been run to a depth of 2585m depth and the well deepened a further 22m.

But during this deepening, the well experienced further mud losses at about 250 barrels per hour.

Pancon said the loss of mud to the Nullara Formation has continued to create operational difficulties that have delayed testing the interval.

"However, we remain very encouraged by the presence of both porosity and significant permeability in the Nullara reef section, and the more recent intermittent gas shows when mud circulation is established are also viewed positively," the company said.

"The planned test of the Nullara Formation will determine fluid content and potential flow characteristics of the reservoir."

The Stokes Bay-1 intersection of the Nullara Fm is 80m up-dip of the Pt Torment-1 intersection, which did not have the vugular porosity developed, but tested gas at low rates

Since reaching a total depth of 2777m at Stokes Bay-1, Arc has focused its efforts on curing the ongoing fluid losses in the Nullara Formation.

This has resulted in intermittent circulation, and returns to surface with associated intermittent mud gas peaks of up to 10%.

"In view of the persistent ongoing losses that are now under control, and the accumulating evidence of gas presence in the Nullara, the operator (Arc) has recommended to the JV to complete the well – rather than the previously proposed open hole DST – in order to test this interval," Pancon said.

"The current plan is to complete the well during the next two days, and undertake a clean-up flow prior to moving the rig to the next exploration well."

Only three of Arc's partners – Emerald Oil & Gas, Pancontinental Oil & Gas and First Australian Resources – participated in deepening the Stokes Bay-1 well.

Empire Oil & Gas, Phoenix Resources and Indigo Oil decided not to participate.