For a lot of its life, Lakes Oil was a Woodside subsidiary. Lakes’ chairman, Rob Annells, says they have used Woodside as a role model.
Lakes certainly has plenty of opportunities in the next quarter, the result of some opportunistic farm-ins into speculative wells.
As this goes to press, Lakes are involved with two exciting onshore wells in two highly prospective areas, California and south east Australia’s Otway Basin. But it’s a deeper, offshore prospect, Troas, in the South Australian section of the Otway Basin that really has the Lakes executives excited, after seeing Origin Energy and Woodside’s Thylacine-1 well, also in the Otway, yield excellent results
First things first. Lakes will know within weeks if they will be entering the ranks of producers when the results of the McNamara-1 well in the Otway Basin and the Eagle-1 well in California are known. The Eagle play is well documented (in our previous issue) as it has a number of Australian juniors participating, and if it is successful, should prove commercially lucrative in the energy starved west coast of the United States.
It is these smaller plays which will keep the market and shareholders interested, but the dynamics of energy supply to SE Australia has firmly swung Lakes’ way. It is widely anticipated that Santos, whose gas market share is under increasing pressure, will be very interested in EPPSA 24 and the large potential of the Troas prospect.
Mr Annells however is quick to point out that a short term speculation in Lakes Oil on a south Californian drilling program is also a longer term investment in south east Australian energy demand.
He said Lakes remained faithful to its long held belief in the existence of commercial hydrocarbons in onshore Victoria, particularly onshore Gippsland Basin, and have a number of high quality wells planned for their acreage in the region.
“While Origin has power generation on their Katnook discovery, Mount Gambier is very anxious to see more power being generated in the area and the obvious place is to put it either there or down into the Portland area,” said Annells.
“Everybody’s eyeing the markets at Mount Gambier. Everybody’s working out what is going on in Adelaide and Melbourne for that matter. There is a lot of manouvering and we see ourselves as sitting there with a hand of cards which, aside from the current state of flux with the Timor Sea, as the most exciting game in town.
“Portland is the only deepwater port located between Melbourne and Adelaide and to its north is the Murray Basin with its minerals sands now being developed. It is becoming very possible that those sands will be processed at Portland. .
“That is going to require, of course, a lot of energy. There is already the Alcoa aluminium plant which is a huge user of energy and that energy comes from right over the other side of the state at huge cost. There’s Mount Gambier sitting almost halfway between Melbourne and Adelaide on the end of the power lines from both cities and if there’s any problems in supply they’re the ones that get kicked every time.
“Either way it is going to help Alcoa, the minerals sands producers and the development of the region. There’s a lot of blue gum and pine forests down there together with paper and tissue mills - all require energy. There’s the potential for cogeneration plants, urea plants, formaldehyde. What we’ve seen in the west is that if you bring the energy in, industry follows.
“When the South Australian pipeline goes through, whether we’re a part of it or not, there will be tremendous development in that region, apart from the Adelaide requirement. We couldn’t be in a better position. It’s the same thing, location, location, location,” he said.
Chairman Rob Annells was involved with Woodside in his previous role as Managing Director of former Melbourne stockbrokers May & Mellor who were brokers to the company for many years, and aside from being a stockbroker by trade, is well qualified to endorse the old saying “small companies become big companies.” He firmly believes Lakes should look to the former Victorian explorer as a role model.
“It must be very satisfying to be someone like Geoff Donaldson, ex Woodside chairman, who can look back on his career and say Woodside was 10 cents and now it’s $14 – and say ‘I did that’. He is very responsible for what has taken place with that company. .
“BHP, the previous operators of EPPSA 24, estimated gas in place of up to 600 billion cubic feet . We now estimate in the lower formation, which we didn’t get to when the well was drilled in 1992 as having potentially up to a further 400 bcf recoverable and in the northern section possibly another 400-500 bcf recoverable.
Water depth is 85 metres and 20km from shore. We won’t be ready to drill until 1st quarter next year.
“We think strategically we are in a very important position. It’s all very well for us to be ignored as just a little company with big ideas but if we were to introduce a farmout partner of international standing that may cause a little bit of imbalance in the markets, and cause a rethink by the industry..
“Ideally we’d like to farm down to 50/50, but we’re also realists. Side by side we’re going down the road of farming it out and at the same time looking at the potential for floating a stand alone company, which Lakes would own a percentage of. In both cases it would give Lakes a free carry.
“Because we have to drill it by May next year, we’d be very foolish to out all our eggs in one basket. So we’re working these two scenarios side by side and at some time, probably July or August, we’ll drop one of those options and go hell for leather on one or another.
“We’re talking a $15 million well before testing and a further $250 million to bring it into production with a plant, platform and everything else that you’d have to do.
“If Troas 2 was successful we’d then shoot 3d seismic before we did any further wells, probably just over the Troas field. We’d do that, put in the platform, put in the plant, get all that happening, then you’d come back and look at the rest after that. If the well is successful there’s many years of work here, many many years of work.