In addition, the company has obtained an option from Ausam Resources to boost its interest in PEP 166 from 50% to 75% by drilling two wells, for which it will pay all of the costs. The first well, Hazelwood-1, is also seeking tight gas and is expected to spud in early 2007.

$40 million tight gas/oil partnership

Under the new partnership, Lakes will farm-out a third stake in all of its permits to unconventional petroleum specialist PetroHunter Energy in return for $A9.3 million worth of exploration expenditure. In addition, PetroHunter will subscribe for $4 million worth of new shares in Lakes at 1.5c each.

It will also have the right to increase its stake in the permits by an extra third, exercisable in two equal tranches worth $13.3 million each, over the next two years.

This deal reflects a wider strategy for Petrohunter and its subsidiary Sweetpea, which is to acquire and develop unconventional oil and gas prospects around the world. The companies have exploration activities in the United States, Europe, and Australia’s frontier Beetaloo Basin in the Northern Territory.

Of particular benefit to Lakes are the company’s “select number of experts who are amongst the world leaders in the extraction of oil and gas from unconventional reservoirs”.

The deal is subject to the completion of due diligence and being awarded the retention of lease applications over PEP 157 and PEP 158.

In May, Lakes announced it had signed a memorandum of understand with Sinopec – China’s largest oil and gas company – to commercialise its tight gas resource in the Gippsland Basin. The company had hoped to wrap up the farm-out deal in August, but has not released any further updates to the market since that time.

Hazelwood

Meanwhile, Lakes and Ausam Resources has contracted a rig and selected a drilling location for the first well, Hazelwood-1, in PEP 166, located not far from the power station of the same name.

The second well, Boola Boola, is to be located further north, but is yet to have a drilling date finalised.

“We are confident of finding tight gas in the Hazelwood-1 well, however recent activities to the west in the adjoining permit PEP 162, held by Karoon Energy suggest there is a possibility of finding oil in the Rintouls Sandstone, which lies beneath our primary target, the Strzelecki Sandstone,” Lakes chairman Robert Annells said.

“Should gas be present, the strategic location of this well would be of significant interest to the nearby Hazelwood Power Station.”