Rinehart buys strategic stake in minnow Lakes Oil
AUSTRALIA'S unconventional oil and gas sector is a good place to invest so long as the location is right, according to one of the top executives at Gina Rinehart's Hancock Prospecting.
The rare comments from Hancock's chief development officer, John Klepec, came after one of Ms Rinehart's private companies made a strategic investment in the sector through a small Melbourne company called Lakes Oil.
The deal saw Timeview Enterprises - a subsidiary of Hancock Prospecting - purchase $4.25 million worth of Lakes Oil convertible notes.
If fully converted into shares, Ms Rinehart would control 18.6 per cent of shares in Lakes Oil, which is seeking to develop unconventional forms of oil and gas in Victoria.
Unconventional forms include shale oil, shale gas, and tight gas and typically require the controversial hydraulic fracturing technique known as "fracking".
Ms Rinehart's investment was made despite Victoria's moratorium on fracking approvals, which will remain in place until a national framework can be developed later this year.
NSW has previously imposed - then removed - a similar moratorium and Mr Klepec said Victoria's stance was not enough to deter the Rinehart camp. "That has to run its course, but across Australia other state governments have done the same thing, which is fair enough. They have to run these things to ground and we think there will be a similar positive outcome," he said.
Lakes Oil is focusing on the Otway basin and the Gippsland basin - which is close to the traditional Bass Strait oilfields as well as the Latrobe Valley power stations - and Mr Klepec said the Rinehart camp had been impressed with the location of the tenements.
"This particular opportunity came to us late last year and we think it has got particularly good upside. It has a great location, with shale gas there is no point having it if it's not close to the infrastructure where you can do something with it," he said. "For us it is not a massive investment, but it is a large stake and we think it is one of these things that is a long-dated option with huge upside and limited downside."
Lakes Oil is not Ms Rinehart's first exposure to unconventional oil and gas, with Mr Klepec saying the Hancock group also held prospective tenements in the Northern Territory. "They are very early stage but highly prospective, and shale oil in particular is a good commodity to be in," he said.
But when asked if unconventional oil and gas would ever rival iron ore as the Rinehart camp's major focus, Mr Klepec said expectations were being kept in check.
"The expectations are not that large - iron ore is a major part of the group's assets. If it ever eventuates like that everyone would be pretty happy, but no, the bar is set a lot lower than that," he said.
Lakes Oil has been targeted by environmental campaigners and Friends of the Earth spokesman Cam Walker said the deal with the Rinehart camp "must concern everyone who is worried about the prospect of an onshore gas industry" in Victoria.
But Lakes Oil chairman Robert Annells said the investment should be seen as a vote of confidence in Victoria's resources sector.
"It's a good result for the company and it's a good result for Victoria too, because the mining boom has missed Victoria a little and there is no reason to believe resources end at state borders," he said.
The deal will result in Professor Ian Plimer becoming a non-executive director of Lakes Oil.
The Lakes Oil share price rose from 0.4¢ to 0.6¢ on Tuesday.
Hancock Prospecting is a substantial shareholder in Fairfax Media, the owner of this publication.