Lakes Oil (ASX: LKO) has been encouraged by the Western Australian Government initiative to reduce the State royalty rate on "tight gas" by half to 5 per cent.
The current rate of 10% royalty in place in Western Australia has put tight gas explorers and producers at a disadvantage to other petroleum producers - given start up and operational costs.
Tight gas is found in low permeable rocks and generally requires special equipment for extraction.
A tight gas producer may need to drill 100 to 300 wells to maintain production levels, versus the 10 to 20 wells for an offshore petroleum producer.
Victorian known tight gas fields, where Lakes Oil has spent in excess of $40 million moving PRL 2 towards commercialisation, are strategically located in the onshore Gippsland Basin.
Lakes Oil owns significant exploration acreage (some 127,500 square kilometres) in the Gippsland and Otway Basins which is highly prospective for tight gas – at thicknesses up to 1 kilometre and beyond.
Its Gippsland tight gas fields are ideally located for power generation. Importantly for green house gas emissions, the tight gas has near zero levels of carbon dioxide prior to burning.
Lakes Oil is looking to commercialise its tight gas resource, and the proposed Wombat 4 well is the next step in that direction.
It would seem, given carbon emission issues in the Latrobe Valley, that tight gas could provide a valuable stop gap for power generation in Victoria until emission problems are solved.
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