He's using a shorthand term for both the characters and the audience to quickly indicate that it's ancient, yes. You aren't supposed to take him literally or infer his scientific background from it. The point isn't whether it's literally fossilized, or if Dallas is wrong due to a retcon from a later movie. The point is that 'Alien' intends the audience conclude it to be ancient, therefore it is. The mere fact he says it is sufficient to show the movie's intent.
Dallas is not set up to be an unreliable character, the audience is supposed to take what he says as gospel truth.
FULL DISCLOSURE— I'm conveniently ignoring Lambert's "1200km" line; she's equally meant to be a reliable character, and the intent *was* that LV426 be small (originally something like 120km, in fact).
Much like actual canon, head canon need not be internally consistent.