You are going to need to have access to the pipe BEHIND the puncture.  If that means you need to open the drywall to get to it, then yes, you will have to open the wall up.  You can cut the pipe out there and solder a new line on.  Before you solder the new line, remove the "guts" of the new faucet, as the heat from soldering will melt some of the rubber and cause a future slow drip/leak.

As to how it came about, without seeing the area its impossible to know.  Crack on outdoor spicket lines are typical in areas where it freezes and water is in the pipe.  In the northeast where it freezes, we have a shutoff valve inside the house where that line starts.  In the fall, you close it there, drain the line from the spicket and cover the spicket with a cover.  If you left water in the line and it froze, it may have contributed.

Also, if you need to cut the dry wall, instead of covering it again, consider a "adjustable access panel cover" to cover the hole.  They can be painted to match the wall and pop on/off very easily giving you access when you need it. Well worth the $25 or so with no spackle/tape/sanding/priming/painting.    

You definitely need to get to it from inside the wall.



I would install a "frost free sillcock" to prevent it from happening again.



As stated above turn your outside faucets off in the fall when the temperature starts getting near freezing and drain the line with a bleeder shot off valve.

Assuming it's a freeze proof hydrant because you said you removed the guts and could see the hole...  Either the hose was attached during freezing temps or the pipe isn't pitched towards the exterior to allow it to drain properly.  In the past, if the hose wasn't connected and you turned the valve off did it appear to drip for several seconds to empty the pipe?

You can sweat those too.  Unless the pipe in the wall cavity has a drop eared L you'll probably just screw up the pipe in the wall cavity if you tried to turn the hydrant.

Oh well, took a shot.  Maybe it just developed a pin hole.

joeyd16779  posted above how to proceed.  Opening up the drywall isn't fun but chances are the wall cavity insulation is wet and holding water...

The person who lives with me tried to shut off the valve that leads to the spigot in the yard (due to the cold), and now the valve is leaking (slowly) and she couldn't shut it off.  So now I have to crawl under a crawl space with 2" between the wood beams and the pipe and cut this thing off and replace it.  Yay.  Never soldered before but I do know how to do it.  Guess I had to do it sometime.