As we all know, Lakes Oil is one of the oldest small cap stocks on the ASX.
It has long been considered a dead duck; a shell struggling to survive... a company in name only.
The truth is, however, that LKO are in possession of prime real estate, the extent of which most people in the investment community don't realise.
I have closely watched the developments over the last few years and the recent company-transforming events have provided a strong signal for me to take a large stake in the company today.
LKO really does have a lot going for it... and the time for it's large share price re-rating is now. I strongly believe that this company will make a push to 2c in the next month or so... and i've put my hard-earned on it today.
Firstly, the multi-billion dollar company, Beach Petroleum, has committed to spending $50million for 50% of LKO's PRL-2 permit in the Gippsland Basin.
The Gippsland Basin is one of Australia’s most prolific conventional hydrocarbon basins with more than 4 billion barrels of oil and 7 trillion cubic feet of gas produced since 1969. While the vast majority of production has occurred from offshore oil and gas fields the presence of hydrocarbons onshore, notably within PRL2, is proven and awaiting the development and application of the correct technology to commercialise these unconventional resources.
The development of the gas producing Wombat field triggered worldwide interest, given its proximity to the prolific offshore production from Esso/BHP in Bass Strait. News that Beach Petroleum had joined LKO to help develop the Wombat wells to a possible commercial level and to spend up to $50 million did not go unnoticed in the oil and gas industry.
It was only a matter of time before oil and gas giant PetroChina's research and development arm visited LKO's permits to exchange research for the future development of tight gas in Gippsland Victoria.
As we all know, Australia is going through a shale gas boom, and companies holding acreage in the Canning Basin, Amadeus and the Beetaloo basins have had significant re-ratings even though their projects are so far from existing infrastructure. Impressively, LKO sought an independent assessment of the tight gas prospective resources within their permits. They found that the combined P50 estimate for the prospective gas initially in-place (GIIP) resources in the Greater Baragwanath Anticline in PEP 166 and PRL 2 alone is approximately 2.3 TCF!
According to well-known geologists, the Otway and the Gippsland basin is the perfect combination of geological potential, existing infra-structure and proximity to the Australia's most populated regions.
Based on available evidence, the significantly overdue fracture stimulation work program by Beach Petroleum should yield highly encouraging results and a likely upgrade in these already astronomical estimates. The program was due to commence in January 2012, so we are right at the precipice of drilling with a free-carried interest in a potentially huge tight gas area.
In addition to the impressive Gippsland Basin activities, i have been astounded by recent efforts by the newly formed, and highly credentialled, Armour Energy to attain a stake in LKO.
Armour, who are headed by the very well-known Nick Mather and William Stubbs, have taken up a 900million share stake in LKO and have agreed to fund the drilling and completion of a well in the Morey prospect to earn an interest of 51% in PEP169 in the Otway Basin.
The drill rig is on site and drilling should occur any day now. Yet another free-carried drill exposure for LKO in a highly prospective basin with shale gas experts in control!
Very interestingly, Armour's directors successfully requested board positions on LKO and have arranged for an option for Armour energy to acquire 50% of Lakes Oil’s interests in the Trifon and Gangell blocks, and a direct 25% interest in the remainder of PRL2, for a total payment of $30 million. There is no share price stimulus more powerful than two large companies sniffing around one hugely prospective region.
For those who are not aware, these new directors of LKO, are the same gentlemen who co-founded and directed Arrow energy, until it was taken over by Shell for $3.5billion. These same gentlemen co-founded Bow energy and directed it until it was taken over for $550million.
They have come on board LKO for a reason. Why? Well it should be obvious.
--> Substantial unconventional resource potential --> Abundant gas discoveries in the region --> Extensive local infrastructure --> 2 highly prospective free-carried drill programs imminent --> Oil occurrences suggesting a possible new source for Gippsland Basin oil
Lakes oil has quietly gone about transforming itself over the last year or so. The results will be there for all to see in the next month or so.
LKO Price at posting:
0.7¢ Sentiment: Buy Disclosure: Held
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