The damaging fraccing ban in Victoria has not put Lakes Oil in a corner, but instead it has come out with all guns blazing and its intent on pursuing its objective of producing natural gas onshore.

Lakes Oil executive chairman Robert Annells is looking on the bright side.

The company has been on a long journey, overcoming obstacles on its mission to provide Victorian industry with Victorian gas to create jobs.

But the Victorian government's ban - firstly on coal seam gas exploration and hydraulic fracturing (fraccing) then further extended to include all onshore gas exploration - has stopped Lakes' development plans in its tracks.

However, like deep natural gas finding a way to the surface, Annells is finding optimism in the delays.

The company has been using its time wisely, signing conditional sales agreements with two major end-users and acquiring new acreage in Queensland and western Victoria, while it awaits an end to the state government's extended bans.

Pressure is mounting as delays to energy projects are expected to push Victorian gas prices up, with experts predicting large gas shortages for Victoria.

Lakes Oil has received strong support from mining billionaire Gina Rinehart, whose Hancock Prospecting's 100%-owned subsidiary Timeview Enterprises snapped up almost a 20% stake in Lakes Oil despite the bans.

Lakes has also welcomed a strategic investment by Australian gas explorer Armour Energy, which has matched Timeview's stake and also partnered with Lakes at three tenements. The first is at PEP169, a proven hydrocarbon province in the Otway where Lakes plans its Otway-1 conventional exploration well; the other two are in Gippsland including PRL2 where Lakes is waiting to start its frac-free Wombat-5 production well.

Former foreign minister Alexander Downer was a board member of Lakes Oil until April, when he took up the position of High Commissioner to the United Kingdom. He was replaced by well-known economist and businessman Kyle Wightman.

Annells said Rinehart's support had made a big difference to the company's morale.

"We're absolutely delighted. It gives us more standing in the community and with our peers as well," he said.

"We've got a board that's got vast experience and good connections and while our share price is not high in share price terms, our market cap is around $40 million, so we're small but we're on the move.

"This background gives us lots of opportunities for the future."

The 68-year-old company started production in the Gippsland Basin at Lakes Entrance after the Second World War and continued exploration before becoming a subsidiary of Woodside Petroleum in the 1950s.

However Woodside never gained full control of the company and after it lay dormant for 30 years, sharebroker Annells spotted the opportunity and made a successful takeover offer and had Lakes Oil relisted in 1985.

The company has since continued exploration in Australia and overseas, producing oil and gas in America and holding a 17.97% stake in the Eagle onshore oil prospect in California.

But about 15 years ago, Annells directed the company's attention back to its roots to explore the unconventional, or tight, gas potential in Victoria's Gippsland and Otway onshore basins that many back home knew little about.

The company also holds three coal exploration licences in Gippsland through its wholly owned subsidiary Commonwealth Mining. Annells is quick to point out the company is only interested in brown coal and not CSG.

Unconventional gas is released by fraccing tight rocks hundreds of metres below the surface through high pressure stimulation of safe fluid. The sand in the fluid holds the 1mm-wide fractures open so trapped gas can be released up the well.

Annells said the company had been on "a long journey" to reach the current holding pattern.

"It's been 15 years since we went down this track looking for unconventional gas in Victoria and at that time we were well ahead of most in the country, aside from some activity in the Perth basin," he said.

He said the then authorities' lack of understanding of unconventional gas had hampered development and Lakes' ability to renew its exploration leases.

"We lost a lot of acreage but we retained the best part, which I guess was good news and bad news," he said.

Lake's frontrunner is the Wombat project in PRL2, and Annells said the company had performed only 11 fracs across five wells in the Gippsland area since 2004 without any issues.

A Beach Energy-led farm-in was ready to spend $A50 million for a half-share in PRL2 when "all hell broke loose" over community concerns and confusion about separate coal seam gas projects.

Lakes was caught up in the state government's resulting moratorium on fraccing, announced in August 2012, so with Beach withdrawing its capital, Lakes took a fresh look at the Wombat field and designed Wombat-5, a frac-free horizontal well that would access the top weathered section of the Cretaceous layer.

The company had satisfied environmental and technical requirements, both for Wombat-5 and the Otway-1 exploration well in PEP169, and was waiting on ministerial approval when the state government extended its ban to all onshore wells.

Annells is annoyed by the recent approval of Origin Energy's offshore well, which will firstly drill onshore in a very similar design to Lakes' nearby planned Otway-1, before Origin's turns horizontally out under the Bass Strait to its offshore target.

"I'm frustrated the government hasn't been consistent and to blithely pass it off as an offshore well reveals their ignorance of the geology," Annells said.

"I'm not sour grapes as far as Origin's concerned; good luck to them. But we're here and ready to move into production and we've got restrictions again."

The British government announced measures to boost fraccing in southern England in May, which Annells said pointed to the growing number of enquiries which commuted the same message: "there is nothing to fear".

Annells is confident of strong community support for its operations from Lakes Oil's heartland, the Gippsland basin, and he hopes this is reflected in the government's current consultation process, which is expected to be completed mid-2015.

He said a question from a high profile Victorian recently demonstrated public opinion was shifting in the face of fresh issues.

"He asked me: when the government realises fraccing is not going to damage the environment, when gas prices start hurting consumers, and when there's the likelihood of a gas shortage - how quickly can you bring Wombat into production?" Annells said.

"We could do it in 18 months to two years and it depends on the government of the day - but there are people out there who are thinking and that's great."

In the meantime, Lakes Oil is assessing its new acreage in Otway Basin, without onsite activity.

It also plans active exploration over the next six years to test potential conventional and unconventional plays at its new Queensland acreage in the Eromanga Basin and northern flank of the Cooper Basin.

Lakes has signed letters of intent with two end-users, Simplot and Dow Chemical, for the sale of gas from Wombat-5 conditional on the field's commercialisation and the end of the state's drilling moratorium.

"I think there's going to be a lot of gas found in the onshore Otway as well as the Gippsland," Annells said.

"We believe there's a very real chance we'll find oil onshore in Gippsland as well.

"Every well we've drilled onshore in Gippsland has had oil, and one flowed oil.

"One day when we get Wombat going again, I think it'll prove to be a very valuable asset."

Happily for Lakes Oil, gas prices have risen strongly during the course of delays.

"When we first started doing this, the gas price was $A2.50-$3 a gigajoule, of course now it's getting close to $8," Annells said.

"So while we've had our frustrations financially, hopefully once we get going it'll be a far more profitable project."

This report was commissioned by Lakes Oil and appeared in the September-October edition of Energy News' sister publication RESOURCESTOCKS.