Lakes Oil (ASX: LKO) is raising up to A$7.2 million to fund its drilling program at the onshore Gippsland and Otway Basins.
The company is planning to drill with Armour Energy (ASX: AJQ) the Otway-1 well close to the Iona gas field in the Otway Basin as soon as possible.
Otway-1 was identified on 3D seismic and is currently going through the approval process.
This will be followed by the drilling of at least one well near the old ‘oil shaft’ at the Lakes Entrance oil field to test the oil water ratio there.
Tests will then be made to separate out the oil from the water. Depending on the amount and costs involved it is possible this could be commercial at current oil prices.
Later in 2013, Lakes will drill with Armour a further core hole in PEP 166, Gippsland Basin, to further test the theory that there is a rich highly carboniferous rock below a large portion of the Basin, which could be generating oil and charging either the fractured basement on which it sits or the Rintouls sandstone above.
Lakes plans to fund these wells and secure additional working capital through a non-renounceable rights issue of listed unsecured converting notes priced at A$10 each.
Shareholders will be offered the opportunity to subscribe for one note for every 10,000 shares held with a minimum A$500 entitlement and subscription.
Each note pays out half yearly interest of A$0.50, equating to 10% per annum interest rate.
The notes convert into shares at a maximum price of A$0.002 each. They also have a minimum conversion rate of A$0.0015 per share, protecting holders from declines in Lake’s share price.
Armour, which holds 12.99% of Lakes, has confirmed its intention to subscribe for notes to increase its current holding to, on the conversion of those notes, achieve a position of 15% of the total issued share capital and the Note issue, in Lakes.
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