Petroleum Exploration Permits 167 & 175 (PEP 167 & PEP 175)

‘The Portland Energy Project’

Lakes Blue Energy has a 100% interest in PEP175 & PEP175, which were acquired in September 2014 and form the basis of the company’s ‘Portland Energy Project’. The Portland Energy Project is based upon a Focus Area in the southwestern corner of PEP175, to north of Port Fairy, selected for investigation on the basis of historic seismic and drilling data, and in recognition of the potential for production of gas by conventional means. There has been considerable historic drilling activity in and around the Focus Area, all of which has confirmed beyond doubt the presence of natural gas within the thick Eumeralla Formation. While gas was demonstrated to exist, the potential for its production was not historically tested since the search, at that time, was for oil, there was no market available for gas and no gas pipeline infrastructure was present. These circumstances have of course now all changed. Pipeline infrastructure is available and the Victorian gas market (indeed the eastern Australian gas market) is desperate for increased supplies of gas to curtail prohibitive gas price increases.

With independent expert assistance, the company has identified preferred locations for drilling of two proof-of-concept wells, Greenslopes-2 and Portland Energy-1. Both wells are to be conventional wells, drilled to a depth of around 1,500 metres with the
specific purpose of demonstrating that gas can be produced by conventional means from the Eumeralla Formation.

Lakes Blue Energy has commissioned independent assessmetns that confirm the gas-in-place potential of the Eumeralla Formation. As set out in Table 1, the estimated (50% probability) gas resource of the Focus Area is 11.5 trillion cubic feet, of which the Company considers around 3 trillion cubic feet should be recoverable by conventional means. The Portland Energy Project has the potential to fundamentally change the landscape of gas supply into the eastern Australian gas market.

Enterprise North

The Enterprise North prospect is located onshore in PEP 169, near the Otway and Athena gas processing facilities and the lona gas storage facility and is “on-trend” with the Enterprise (Beach Energy Ltd) and Minerva (Cooper Energy Limited) gas fields. The Prospect covers as area of up to 1,170 acres and is prognosed to contain 32.9 PJ of recoverable gas at 50% probability level.

Portland Energy Project - Focus Area

Petroleum Exploration Permit 169 (PEP 169)

Lakes Blue Energy has a 49% interest in PEP 169 that is in the process of being transferred to Armour Energy (Victoria) Pty Ltd for consideration of $6.5 million (the first $3.0m of which has been received)  plus an ongoing 6% royalty over Armour’s preexisting 51% interest. There is also an existing 2% royalty share receivable by Lakes over the 49% interest that is being transferred.

Proceeds from the sale of Lakes’ interest in PEP169 will be used to expedite pursuit of Lakes’ wholly owned Wombat Project (detailed above), where contingent resources of gas have already been independently certified.

There are several exploration objectives within PEP 169 that will be pursued by Armour, at no ongoing cost to Lakes but with Lakes benefitting from any exploration/development success through royalties receivable. Two prospects of interest are described below.