From what I understand we hit a fracture that has a good possibility of holding hydrocarbons because of the fluid that was found on the bit after we pulled it out. We lost circulation in the first fracture, that is how we knew we found a fracture. They continued to circulate and regained circulation. We then drilled deeper and found the 2nd fracture. We lost circulation this time but NEVER regained it. The 2nd fracture was a water reservoir that we hit. That is why they pulled so much water out of it and contaminated the 1st fracture with the water, rock, and sand. If they can plug the bore hole, side track,  and re-drill into the 1st fracture we should be OK if the 1st is what we think. I would not call it "serious water issues" just yet. This is a common occurrence.