Hot seat ... Professor Ian Plimer.

Hot seat ... Professor Ian Plimer. Photo: Penny Bradfield

Mining magnate Gina Rinehart's main company has invested in Melbourne oil and gas minnow Lakes Oil through a convertible notes issue.

In a purchase that was announced by Lakes Oil to the Australian Stock Exchange this morning, the company said the bulk of a $6.3 million notes issue had been bought by a wholly owned subsidiary of Ms Rinehart's Hancock Prospecting.

The subsidiary was not named in the statement, but the deal would see it hold 18.6 per cent of Lakes Oil if all notes were converted.

Shares in Lakes Oil were up 25 per cent, or 0.1 of a cent, at half a cent in afternoon trade.

Lakes Oil chairman Robert Annells said the earliest the shares could be converted would be in May this year.

As part of the deal, Ms Rinehart's ally Professor Ian Plimer has been appointed as a non-executive director of Lakes Oil.

Mr Plimer is a noted climate change sceptic and holds director positions at Hancock Prospecting as well as several ASX-listed companies.

Lakes Oil is targeting tight gas in the Gippsland basin, which is not far from the famous Bass Strait oilfields that are worked by BHP Billiton, ExxonMobil and other significant names in the world of oil and gas.

Mr Annells said the transaction had been conducted with a company known as Timeview Enterprises, which is part of Ms Rinehart's broader business empire.

He said Lakes Oil was investigating the potential for unconventional oil and gas in Victoria.

"It's a good result for the company and it's a good result for Victoria too because the mining boom has missed Victoria a little and there is no reasons to believe resources end at state borders," he said.

Mr Annells said an independent third party had conceived the idea and had introduced Lakes Oil to Hancock Prospecting.

Lakes Oil describes itself as an unconventional oil and gas company, and the oldest one of its kind still operating in Australia.

The company, which was formed in 1946, started out by producing oil from shallow glauconite sands at the Victorian town of Lakes Entrance.

It has been more recently focusing on drilling wells near the Yallourn power station in Victoria’s Gippsland Basin amid hopes it can recover oil from carbonaceous rocks.

Lakes hopes it can replicate the success of companies in the US, where oil is being produced from similar source rocks and shale.