Australia’s richest person, Gina Rinehart, has invested in a small Victorian oil and gas company, Lakes Oil, through a convertible notes issue.
The mining magnate’s latest move is controversial as the Victorian government has banned Lakes Oil from using hydraulic fracturing to tap into hard-to-access oil and gas, pending the setting of national guidelines for the controversial practice.
Lakes Oil chairman Robert Annells told SmartCompany Rinehart’s investment, which was announced to the Australian Stock Exchange yesterday, comprised $4.25 million of a $6.3 million notes issue.
The investment was made by Time View Enterprises, a wholly owned subsidiary of Rinehart’s Hancock Prospecting.
The deal will see Time View Enterprises hold 18.6% of Lakes Oil if all notes are converted. The earliest the shares can be converted is in May this year and then every six months after that.
Lakes Oil targets tight gas – a difficult to access, unconventional gas source – in the Gippsland and Otway basins and describes itself as an unconventional oil and gas company, which was formed in 1946.
Annells says the investment by Rinehart is a vote of confidence in the company and its approach to mining.
“We have found a lot of gas in Victoria that has been overlooked by many I think, we were very early into the unconventional tight gas scene,” he says.
“We were there 20 years before it was fashionable, it was only more recently that people have recognised the potential of it.”
Annells says there is huge opportunity for growth if the Victorian government’s ban on fracturing – commonly known as “fracking” – is overturned.
Fracking is a process in which pressurised water, chemicals and sand are pumped underground to release gas trapped in rock formations. The process is used in the United States.
“At the moment we are hamstrung by the Victorian moratorium on fracking but hopefully that will be amended,” Annells says.
“The opportunity is to go into production. It is a revolution that is spreading across the world.”
As part of the deal, mining geology expert Professor Ian Plimer has been appointed as a non-executive director of Lakes Oil.
Plimer, a well-known climate change sceptic, is a director at Hancock Prospecting.
Annells says under the terms of the investment Rinehart will appoint another non-executive director shortly. However, he would not reveal who that would be.
Lakes Oil was approached by an independent third party which set up the deal between Lakes Oil and Hancock Prospecting.
“The investment was introduced to us by another party which recognised the opportunity and introduced us to the Hancock group,” Annells says.
SmartCompany contacted Hancock Prospecting for comment but no response was received prior to publication.
Cara Waters is a former SmartCompany editor. Previously, Cara was a senior reporter for the Financial Times’ website and worked for The Sunday Times in London.
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