Sacgasco has picked up a gas project in California’s largest gas field and it didn’t cost a cent.

Not only did Sacgasco not have to pay anything for the acquisition, but the vendors will pay the junior gas explorer $US100,000 ($135,678) as a contribution to future abandonment costs for the acquired wells.

The news sent shares up 10 per cent on Monday morning.

Sacgasco (ASX:SGC) told investors it was grabbing a 100 per cent interest in a 467-acre oil and gas lease in the prolific Rio Vista gas field in the Sacramento Basin of California.

Managing director Gary Jeffery told Stockhead the deal came courtesy of the company’s well connected operator on the ground.

“He is quite well connected in the basin … and through his associates [we] heard about this company that only had the three wells left in their portfolio and wanted to exit the business,” he said.

“I know everyone is always cynical and sceptical and all those other things about when you do deal like this for no cost, and moreover if someone gives a $US100,000 — why would someone do that?

“Obviously in this case the guy is getting out of the business, he has other business interests and that’s the deal we’ve negotiated, and I think our operator has done a great job of negotiating that deal.

“We wouldn’t do it if we didn’t think there’s significant upside for our shareholders.”

The Rio Vista field has produced over 3.8 trillion cubic feet (Tcf) of natural gas and is the largest natural gas field in the Sacramento Basin and reportedly one of the 15 largest natural gas fields in the US.

The lease that Sacgasco has acquired includes three wells and three development targets.

Rio Vista Gas Field location in California
Rio Vista Gas Field location in California.

Two of the wells have been long-term producers — delivering around 4 billion cubic feet of gas so far.

Mr Jeffery said the wells had been producing since about the late 70s, early 80s.

Production from these two wells is expected to be around 300 million cubic feet (Mcf) per day, which would earn Sacgasco almost $US60,000 in gross monthly revenue at current gas prices.

A third well has over a shorter period produced 1.6 Bcf, before being shut in due to mechanical complications.

Sacgasco says the well presents a “side-track” opportunity to access undrained gas.

The current benchmark gas price is over $US6.50 per Mcf. The price has more than doubled in the past year.

Mr Jeffery said Sacgasco first acquired assets in the Sacramento Basin in 2012 when natural gas prices were around $US1.60 per Mcf.

“These are great assets that strengthen Sacgasco’s production and development portfolio in the Sacramento Basin, and they give us a toe-hold in the giant Rio Vista Gas Field that has produced over 3.8 Tcf of natural gas and is one of the larger onshore natural gas fields in the USA,” he said.

“If development wells produce like the acquired wells, the impact on Sacgasco with a market capitalisation of less than $8m (<US$6m) would be very significant.”

The plan for Sacgasco now is to get as much gas out of the already producing wells as it can.

“We will set about optimising that production from those wells because that’s a low-cost, high reward for your efforts type approach, particularly with gas prices in California being north of $US6.50 at the moment,” Mr Jeffery said.

“We will try and maximise our revenue in the short term.”