The company said the retention leases would give it time to more fully assess discoveries before applying for production licences.

The awarding of the permits are also a condition of the company’s proposed farm-out to US company PetroHunter Energy.

PetroHunter has agreed to spend up to $US30 million ($A38.1 million) to earn up to about 67% interest of its equity in all of Lakes Oil’s exploration permits.

The deal is expected to be finalised around the middle of this month, in time for PetroHunter to finance and participate in the drilling of the Hazelwood-1 well, near the Hazelwood Power Station in permit PEP 166.

Lakes Oil said a small rig is currently onsite drilling the “top hole”, with the heavier Century Rig due to arrive onsite towards the end of this month.

Once the Century Rig has finished drilling Hazelwood-1, it will move to the Boola Boola-2 location also in PEP 166.

A second smaller rig will drill the Atherton-1 and Napier-1 wells in PEP 158 around the same time.