The well, which was drilled to a total depth of 1443m on the weekend, will now be cased for hydraulic fracturing at a later date, Lakes said.

A drill stem test conducted over the interval 1410-1443m recovered a small amount of gas to surface accompanied by water, the company said. The gas contained liquid hydrocarbons (C1-C4).

Chairman Robert Annells said Lakes plans to drill a deeper well when a suitable rig becomes available.

“Based on correlation with Loy Yang-1A and regional geological assessment of the area, we believe that there is potential for better reservoirs below,” he said.

“The well was originally designed only to drill to 1200m and although we encountered some very interesting results, we could not drill below 1443m as the well was only engineered to this depth.”

The well also upgraded the potential of the Strzelecki Group throughout all of Lakes’ Gippsland Basin permits for both tight gas and oil, by extending its prospectivity across the Baragwanath Anticline from Boundary Creek-2, 70km east.

Lakes said preliminary assessment of both Boundary Creek-2 and Loy Yang-2 logs indicated these two wells would most likely produce commercial gas after hydraulic fracturing.

Structural mapping indicates that the crest of the Loy Yang Dome forms a closure at the top of the Strzelecki Group and is located up-dip from the Loy Yang-2 well, according to Lakes.

Loy Yang-2 and Boundary Creek-2 will both be hydraulically fractured in the same program when the equipment becomes available.

Loy Yang-2 was drilled primarily to test the gas potential of a number of sandstone units in the upper part of the Strzelecki Group encountered in the previously drilled Loy Yang-1A well, 40m away. Also encountered from a depth of about 880m are zones of free oil and positive indications of oil from that depth onwards.

“We believe that this well is hugely significant as it confirms not only tight gas but also has the potential for oil to be recovered from the Strzelecki Group, i.e. from below the producing reservoirs located offshore Gippsland Basin,” Annells said.

“Tight gas is an exciting new energy source for Victoria that has been pioneered by Lakes Oil. We have already spent in excess of $30 million on this project to date.”

Annells said the strategic location of tight gas structures near existing infrastructure in the Gippsland Basin, including the Latrobe Valley, could have an important bearing on the state’s energy supplies.