offshore interests to be spun off into new ipo

I'm working my way thru the prospectus.

Short version ...

Lakes et al spin off a new IPO, which pays in at 2:1 to win 50-odd% of Lakes' offshore exploration territory.

Lakes will own a whack of 20c options in Gippsland - how many depends on how much money Gippsland raises.

Lakes (aka Petrotech) will burn down to 26% of Gilbert block, 39% of Vic/P40 and 46% of PEP155.

This deal isnt making me throw up the way Moby Oil did, but it's the same style - spin off a subsiduary, have it pay in to your dirt at a premium, and then IPO it ... as opposed to the parent issuing more shares to fund the exploration.

I'd say the 2:1 is acceptable for brownfields offshore stuff.

Gilbert is going to cost $5.5m, so if Gilbert misses there arent a lot more shots in the locker for Gippsland on a $8-$12m raising (offshore is brutal that way).

The independant geo is saying Gilbert looks to be about 50 mmbl P50 oil recoverable, or 40-odd bcf of gas (60:40 chance for oil). He's calling the odds at 3.8:1, which is decent for exploration (NB this equates to about a 25% chance of a hit). FWIW, the geological story looks decent.

With Gippsland being spun off, that means a miss at Gilbert wont affect Lakes much, but a hit is worth 26% of the find - 10-12 mmbo if you're lucky, 10-12 bcf of gas if you arent.

EBR and MOG will 10% each of Gilbert, with Gippsland having 51% and Rilo (aka Stellar, Gravity Capital's spinoff - they are the Falcoln gravity survey guys) having the last 3%.

I think this is a good deal for Lakes if the IPO gets up (which it should in this market), but I'd need to crunch numbers on who the best entry is.

Ian Whitchurch