Lakes Blue Energy (ASX:LKO) gears up for Wombat-5 drilling with government consent amid ASX suspension

Why is Lakes Blue Energy drilling Wombat-5 and how does this align with its broader gas field ambitions in PRL 2?

Lakes Blue Energy NL (ASX:LKO), an oil and gas exploration company focused on assets in Australia and Papua New Guinea, has received regulatory clearance to begin drilling its highly anticipated Wombat-5 well in Petroleum Retention Lease 2 (PRL 2) located in the onshore Gippsland Basin, Victoria. The approval was granted by Victoria’s Minister for Energy and Resources, the Hon Lily D’Ambrosio MP, under Section 138 of the Petroleum Act 1988, marking a pivotal moment in the company’s gas development roadmap.

This approval allows the Australian gas exploration company to proceed with drilling plans despite being suspended from trading on the Australian Securities Exchange (ASX), where it currently shows a market capitalization of AUD 0 and ranks last out of 2,322 listed firms.

The Wombat-5 well is designed to be a 1.5-kilometer lateral, targeting the gas-rich Strzelecki Formation, and is seen by Lakes Blue Energy as a critical enabler of its field-wide development ambitions in PRL 2.

What regulatory and operational milestones must Lakes Blue Energy achieve before drilling begins in July 2025?

The Ministerial consent to drill is conditional on Lakes Blue Energy securing and paying rehabilitation bonds in two stages. The first stage, covering surface preparation, has already been agreed upon and paid. The second stage, which pertains to the drilling and eventual decommissioning of Wombat-5, must be finalized by June 30, 2025.

Lakes Blue Energy has also formalized an agreement with Condor Energy Services Limited to supply Rig #1 for the operation. The electric utility developer expects to begin mobilizing drilling equipment during the week of July 14, 2025, with the official spud date projected for the following week.

If the regulatory and logistical timelines are met, the drilling operation is expected to last 25 days, followed by 14 days of well testing using a coiled tubing unit and testing package. The total budget for the Wombat-5 campaign is AUD 7.5 million.

How does the Wombat-5 well build on previous exploration and testing outcomes in the Wombat field?

The Wombat field, part of PRL 2, holds a significant volume of contingent gas resources and has been subject to multiple exploration campaigns. According to Gaffney, Cline & Associates, the Wombat field hosts 329 petajoules (PJs) of gas resources, which contribute to a broader contingent resource estimate of 719 PJs across Wombat, Trifon, and Gangell fields.

Historical drilling efforts at Wombat wells 1 through 4 between 2004 and 2009 demonstrated gas flow rates ranging from 100,000 to 3,000,000 cubic feet per day. These earlier wells tested vertical intervals of 20 to 50 meters within the porous and permeable sections of the upper Strzelecki Formation.

The proposed lateral section for Wombat-5 is intended to tap into this same formation over a longer trajectory, targeting flow rates of up to 10 million cubic feet per day, or approximately 10 terajoules per day, based on independent assessments of reservoir productivity.

What does Lakes Blue Energy’s ASX suspension indicate about its current investor standing and capital structure?

Despite achieving technical milestones, Lakes Blue Energy remains suspended from trading on the ASX with no recent volume, a flat share price of AUD 0.001, and a recorded market capitalization of zero. The firm also ranks last in the ASX’s performance tables, holding the 2,323rd position among listed entities.

This suspended status underscores persistent concerns around liquidity, compliance, and potentially unresolved financial reporting obligations. The lack of capital markets access poses constraints on the Australian gas exploration company’s ability to fund extended field development or ramp up production, even if Wombat-5 delivers commercially viable results.

Investor sentiment is currently dormant, although it may shift depending on the success of the drilling campaign and any subsequent financing or partnership announcements that follow.

What strategic role could Wombat-5 play in addressing future gas supply shortfalls along Australia’s East Coast?

According to indirect remarks from company leadership, the successful drilling and testing of Wombat-5 could position the project as a valuable new supply source in the tightening East Coast gas market. The Victorian government and energy market regulators have repeatedly warned of impending shortages due to maturing production in legacy fields and limited new supply projects.

Chairperson Roland Sleeman stated that the board and management were encouraged by prior flow test data and the size of the resources under PRL 2. He added that the market outlook in Victoria supports the company’s optimism for developing Wombat into a commercially significant gas supplier.

If Lakes Blue Energy can demonstrate reliable flow from the well and secure necessary approvals for full field development, the project could eventually provide several petajoules of gas per year into a constrained supply system, particularly through short-haul tie-ins to local infrastructure.

What could the success or failure of Wombat-5 mean for Lakes Blue Energy’s future business direction and re-listing prospects?

The outcome of Wombat-5 is likely to be a decisive inflection point for Lakes Blue Energy. A successful well would validate the reservoir model, derisk further capital expenditure on development wells, and potentially open doors to farm-ins, infrastructure partnerships, or new financing rounds.

In such a scenario, Lakes Blue Energy could apply for reinstatement on the ASX, backed by demonstrated asset value and a clearer commercial path. This would require not just technical success but also regulatory transparency and the resolution of any compliance issues that led to the trading halt.

On the other hand, failure to reach target flow rates or delays in the execution timeline could put additional pressure on the company’s financial position and credibility with both regulators and stakeholders. Without positive drilling results or new capital infusions, the suspended status may continue indefinitely, or the firm could face asset divestments.

Institutional investors and upstream analysts are expected to monitor this closely, although most are likely to wait for hard data post-drill before recalibrating any exposure to Lakes Blue Energy or its gas acreage.

What are the medium-term expectations for Lakes Blue Energy if Wombat-5 proves commercially viable?

If Wombat-5 is drilled and tested successfully in Q3 2025, Lakes Blue Energy may be able to proceed with a full-field development plan covering not just the Wombat zone but adjacent fields within PRL 2. Analysts will expect updated reserve assessments, capital expenditure projections, and a field monetization timeline that aligns with expected infrastructure upgrades in Victoria.

The firm may also pursue long-term gas sales agreements or short-term spot supply opportunities depending on the regulatory environment and pricing trends. While much remains contingent on near-term execution, the broader significance of Wombat-5 lies in its potential to shift Lakes Blue Energy from a legacy micro-cap explorer to an active domestic gas supplier in a strained regional market.

What does the Wombat-5 campaign reveal about Lakes Blue Energy’s long-term recovery prospects and energy market role?

The upcoming Wombat-5 well represents more than just another appraisal drill for Lakes Blue Energy NL. It is a litmus test for the viability of its gas assets in Victoria, a potential trigger for lifting its ASX suspension, and a crucial opportunity to reposition itself in Australia’s evolving energy supply landscape. With regulatory approval now secured and drilling scheduled to begin in July 2025, all eyes will be on whether the suspended gas exploration firm can convert this technical momentum into commercial traction.