Managed Pressure Drilling (MPD) is an advanced pressure-control method that is used to precisely control the annular pressure throughout the wellbore in an oil well drilling. Because downhole measurements are unreliable due to slow sampling, transmission delay, and loss of communication for low or no-flow conditions, the challenge is to accurately estimate the flow and pressure along the annulus and the unknown in/out flux at the bottom of the well using only topside measurements. This paper describes the development of an adaptive control and observer for such problems that models the transport phenomenon as a 2×2 linear hyperbolic system. The adaptive design, which relies only on the measurements taken at the right boundary, is based on the backstepping method. The design is tested using data from a field scale flow-loop test conducted in Stavanger, Norway by the Statoil oil company. The results show that the observer converges to the actual value and that the update law accurately estimates the unknown parameter.