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Lakes Oil Chairman, Rob Annells

Lakes Oil, Victorian Permit Areas.
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Core recovered from Boundary Creek-1, one of three stratigraphic core holes drilled in PEP 157, location of the Trifon Tight Gas Project.
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Falcon survey technology. Photo courtesy of BHPB.

Company Focus – Lakes Oil

The next six months is shaping up to be a crucial period for Lakes Oil NL as the Melbourne based explorer prepares to test for tight gas in the onshore Gippsland Basin.

In keeping with the spirit of its reputation as a pioneer in Australia's oil and gas industry, Lakes will be hoping to confound the critics with the upcoming 'Trifon Tight Gas Project' by proving that commercial quantities of hydrocarbons don’t just exist in the Bass Strait.

The focus of Lakes' exploration effort over the coming six months will be PEP 157, where Lakes' partner, US-based AusAm Resources, will drill two wells using the advanced drilling techniques that have proven so successful in the tight gas basins of mid-continental USA.

Last September, AusAm signed a farmin agreement with Lakes. Under terms of the agreement, the unlisted, privately-owned company would become the operator of PEP 156, 157 and 158 and earn a 50% interest in each permit by spending up to $10 MM.

In January, Lakes informed the Australian Stock Exchange that AusAm, who have taken a portfolio of tight gas projects in Queensland and Western Australia, had received a letter of commitment from financiers for a minimum $10 MM and a maximum of $12.5 MM.

Lakes Oil Chairman, Rob Annells, said he would have liked to have spudded the first of the Trifon wells already. However, the financiers have had some "hiccups" getting the funds due to the effect of the war in Iraq.

"We don't expect to wait much longer as some of their technical people are already here, we have done work on the pad and the rig is lined up", said Annells.

Last year, Lakes drilled three stratigraphic holes in the permit that confirmed the zero edge of the Golden Beach Formation onshore.
"Our knowledge on the permeability and porosity of the Strzelecki Formation, our target for the Trifon Tight Gas Project, was also increased substantially by the results of these three holes", said Annells.

"We have discovered what we believe to be significant amounts of gas in the Seaspray, Gangell and Trifon wells, and our challenge is now to produce the gas commercially."

Annells said oil services giant Halliburton had reviewed the potential for production by fracture stimulation of the Strzelecki reservoir in the Gangell and Trifon wells, but the potential gas production is subject to water recovery levels.

However, Annells said the projections are very positive because of the very low costs associated in comparison with offshore drilling.

"Any flow rate from onshore production could be modest and still be commercial. We believe we could be profitable with sustained rates of over 1 MMcfd because of the location", he said.

"The qualified report from Halliburton has indicated the possibility of recovering up to 17 MMcfd of gas which,
if successful, would certainly be commercial.

"However, it must be remembered that this report is based on data from our old wells and must be confirmed with a new well designed for fracture stimulation."

Annells said apart from Mosaic, who have achieved good flow rates from tight reservoirs at its Churchie wells in Queensland's Surat Basin, drilling for gas from tight basins is still in its infancy in Australia.

Annells said the drilling of Gregory River-3 in Queensland's Maryborough Basin by Magellan and Novus, using air instead of conventional drilling mud, has tremendous implications for Lakes.

"If it (Gregory River) flows 2 to 3 MMcfd, then we are a sure thing in Gippsland. The geology is the same. Gregory River is deeper with similar porosity and permeability", Annells said.

Amity Oil, which just recently signed a farmin agreement with a Korean consortium for its Whicher Range gasfield, will also be using underbalanced drilling to try and unlock gas from this problematic field located in the southern Perth Basin.

"It is not new in the US. However, it is very new in Australia. In the US more than 15,000 wells have been drilled underbalanced compared with only a dozen or so in Australia.

"When we drilled Trifon-1, we had about 800 m gross column gas and if we can get that to flow then it would very interesting. Particularly because of its location, as we would literally be under the pipeline", said Annells.

"We are pretty optimistic about it because we see the opportunity elsewhere in our permits to repeat it if it works."

While the Trifon Gas Project has concentrated the mind of Lakes' executives recently, it has not stopped the company from pursuing other projects in South Australia and Victoria.

Just recently, Lakes flew the revolutionary BHP Falcon airbone gravity gradiometer (AGG) system over Lakes Entrance in PEP 155.

The survey was followed up by two core holes (Bunga Creek-1 and 2) with a third being planned now. Despite mixed results with the core holes (one was dry, the other had only minor hydrocarbon shows), Lakes said the exercise had given the company a tremendous amount of useful information.

Annells said the Falcon survey technology, which can detect minute changes in gravity fields due to rock densities, as well as image underground pinnacle reefs, folds and faults, was also flown over the offshore permit VIC/P47 in which Lakes has a stake with operator Eagle Bay Resources.

Lakes also flew over the offshore Patricia Baleen field (with OMV's permission, of course) and looked at the Gilbert structure and, according to Annells, the results are "very interesting and have strong implications for onshore, as it is revealing trends that nobody has really thought of before."

As for its offshore South Australia permit, EPP 24, Lakes said it is continuing in its efforts to attract a major company as a farmin partner for this block which hosts the yet-to-be developed Troas-1 ST gas discovery.

Apart from the difficulty of attracting a farmin partner, the advent of whales passing through the permit has meant a limited season in which the company can acquire seismic.

"The company obtained environmental approval but missed the window for the approved period in which to acquire seismic", said Annells. "The company intends to apply for a retention lease over the Troas field in preparation for production testing of this discovery."

Lakes is also looking into the possibility of
re-entering the original well, which a lot of people thought couldn't be done, according to Annells. To this end, a quotation for preparing the plugged and abandoned Troas-1 ST well for re-entry has been obtained.

"Preliminary discussions on rig availability for the deepening of the discovery well to the original, but unreached, target horizon have also been held", he said.

And finally, where would Lakes like to be in 12 months time?

"We hope to have successfully produced commercial gas from the Trifon Tight Gas field, and as a result of that have a number of wells producing down there", he said

"We would look at other blocks in the Otway that have exactly the same geology and in which we still retain a 100% interest."

Annells concluded by saying that onshore Victoria has been ignored for a long time, and it would be nice to say that Lakes was the company that changed the thinking there. This is despite the fact that not everybody agrees with what they are doing.

"A lot of people think we are stupid. They may well be right, but if you aren't willing to have a go in this business, you shouldn't be in it", Annells said.

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