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 small Melbourne company Lakes Oil.
Timeview Enterprises - a subsidiary of Hancock Prospecting - bought $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 until a national framework can be developed this year.
NSW has 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 are close to the traditional Bass Strait oil fields as well as the Latrobe Valley power stations, and Mr Klepec said the Rinehart group 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 companies' major focus, Mr Klepec said expectations were being kept in check.
Lakes Oil has been targeted by environmental campaigners. 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 means Professor Ian Plimer will become a non-executive director of Lakes Oil, whose share price rose from 0.4¢ to 0.6¢ on Tuesday. Hancock Prospecting is a substantial shareholder in Fairfax Media, owner of The Sydney Morning Herald.