The company has announced a letter of intent to acquire private company Peregrine, which gives it operatorship and a larger stake in its flagship Dempsey and Alvares conventional natural gas prospects.

The deal, announced this morning, will see Sacgasco issue 32 million shares to Peregrine's owner, Hereford Securities and Management CEO Paddy Mahon, and pay a further $3 million from any future revenue from gas sales from reservoirs beneath the known producing Forbes Formation from the Dempsey-1 well.

If the deal is finalised Sacgasco will increase its interest in Dempsey from 55% to 90% and Alvarez from 40% to 75%.

Xstate Resources will maintain 10% and 25% respectively.

The transaction, which Sacgasco managing director Gary Jeffrey described as "transformational", is subject to due diligence and shareholder approval, but will give the company a much better bargaining position with potential partners as the JV seeks to drill the first well early next year.

Following approval, Peregrine representative Philip Haydn-Slater is expected to join the board.

Haydn-Slater has worked for almost 40 years in financial markets, including as head of corporate broking at WH Ireland in London.

"This transaction adds considerable value to Sacgasco as it gives us majority working interest and operatorship of two very significant and drill-ready multi-Tcf conventional natural gas prospects in California," Jeffery said.

Dempsey is an exploration prospect with a potential one trillion cubic feet, and success will lead to an appraisal well on the 2.4Tcf Alvares prospect.

"This transaction significantly widens SGC's funding options for the planned drilling of theDempsey-1 well, and we are in advanced discussions with a number of parties interested in farming in or funding the drilling of Dempsey and also Alvares," Jeffrey said.

He said there is interest in the Sacramento Basin because California is gas hungry, and gas prices have increased to over $US3/mcf.