Several cordons are in place as police attend the incident in the Carnhill area of Derry.
Residents in the Carnhill estate, in the greater Shantallow area, reported hearing two loud bangs overnight on Wednesday.
"We didn't see anything so we just went to sleep, then we just woke up this morning and saw the police."Another resident, named Lisa, also heard two bangs from the car park at the back of her home.
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