Rinehart-backed Lakes Oil seeks low-cost loan amid dispute over Victorian ban

The Rinehart-backed Lakes Oil has asked for a low-cost loan to drill onshore amid ongoing legal dispute over Victorian ban.

Lakes Oil operations manager Tim O'Brien, at Origin's gas processing plant on top of the Iona gas field, near Port Campbell. (Stuart McEvoy/The Australian)

The Gina Rinehart-backed Lakes Oil has asked for a low-cost Victorian Government loan to drill onshore in the Gippsland Basin amid a current exploration ban, on condition the funds are secured by sales of future gas flows, if there are any.

With the call for funds has come an offer to drop litigation Lakes is pursuing against Victoria for its onshore gas bans, which have stopped the company from drilling prospects in the onshore Gippsland and Otway Basins.

“This is an exceptional opportunity for Victoria to seek to address the gas supply problems that are affecting the state, and to resolve the current litigation proceedings,” said Lakes chairman Chris Tonkin.

Lakes (LKO) is proposing conventional drilling, which the government has a moratorium on. This does not involve hydraulic fracturing, or fracking, which involves cracking rock underground with high fluid at high pressure and which the Victorian government has banned.

Lakes has asked for an “at cost loan for a mutually agreeable amount” to drill its Wombat-5 well in the Gippsland Basin and three others in Western Victoria to test for commercial volumes of conventional gas.

“The loan will be secured by proceeds from the sale of gas, so the loan will be low risk from the perspective of Government subject to commercial production being achieved,” Lakes said.

Lakes did not say what the risk of the wells not producing economically was.

Wombat-5 is targeting 10 terajoules of gas per day, with Lakes saying it is confident that its method of drilling is different to previous attempts and will yield better results.

The three other wells are in the Otway Basin, with Otway-1 near Origin’s Otway gas plant and two other early stage proof of concept wells further west near Port Fairy.

“Lakes Oil will commit to payment of a proportion of gas sales revenue to landowners upon whose land, and to communities within which, gas production activities are carried out,” Lakes said.

Ms Rinehart and her company Hancock Prospecting own a combined 14 per cent of Lakes, while ASX-listed exploration investment company DGR Global (DGR) owns 47 per cent.

A Victorian Governmnet spokesman indicated it was not open to the offer, although did not specifically address the current moratorium on conventional exploration, as opposed to fracking.

“Victoria is proud to be the first state to legislate a ban on fracking, giving certainty to farmers and protecting our food and fibre heartland,” the spokesman for acting Resources Minister Jacinta Allan said.

“Unlike the Victorian Liberals and Nationals who want to open up our farms to drilling, we won’t be changing our policy.”