Lakes Oil told the ASX it has held preliminary talks with Sinopec, which is now sending a team from Beijing to Melbourne to visit the fields and evaluate current data.

Several US-based companies have also expressed an interest in the project, Lakes said. The Melbourne-based company has so far spent $A30 million on PEP 157.

Over the past two years, the company has continued to explore the permit by either drilling new prospects or reassessing old wells using modern log interpretation undertaken by US-based experts on tight gas.

On the basis of these new interpretations, Lakes believes enough evidence has been acquired to show the delineation of a major new onshore tight gas or oil province.

“This is based on our concept of basin-centred Strzelecki gas, which directly challenges conventional thinking and is gradually gaining acceptance amongst knowledgeable experts who operate in the tight gas area,” chairman Robert Annells said.

“The importance to Victoria of this new onshore gas province should not be underestimated.”

Annells said his company has chosen to continue drilling wildcat wells in PEP 157, rather than bringing existing tight gas discoveries, such as Wombat, Trifon, and Gangell, into production because the permit expires later in 2006 under the current Victorian Petroleum Act.

He said the company plans to apply for a retension lease over a large portion of the permit to allow more time to bring several areas into production.

“Lakes Oil is confident that it can commercialise this potentially large resource in a timely fashion, to meet the significant increase in gas demand in the eastern states,” he said.

“Discussions have already taken place with prospective power generation and industrial users.”

Halliburton USA has completed a comprehensive report titled Integrated Reservoir Study, which covers the Wombat, Gangell and Trifon gas prospect areas. Based on this work, the report recommends moving into a second phase assessment to optimise the requisite drilling and completion programs to move into production.

Unlike conventional gas, tight gas plays are not always confined to structures. Tight gas is more likely to be held within what the US terms “basin centres”.

These can occur over large undefined areas and, unlike conventional reservoirs, the gas occurs over multiple levels and frequently needs artificial stimulation to allow gas to flow to the surface. It also requires many wells to be drilled over a large area to achieve commercial production – similar to coal seam methane.