Nuenco said the joint venture would now complete a short section of the existing pipeline in the area to connect to the buyer's pipeline for gas distribution before the end of the third quarter of 2008.

Initial production would be from the Jack Hamar 3-13 well and is expected to produce about 300,000-400,000 cubic feet of gas per day, the company said.

According to Nuenco, other Jack Hamar wells have the potential to add commercial production volumes.

Nuenco executive director Mark Freeman said the Jack Hamar 3-13 well represents the first gas discovery in the company's portfolio, with gross production expected to be around 150,000-200,000cfd.

"With gas prices now over $US10 per thousand cubic feet, this will make an initial and meaningful contribution to NEO's revenue," he said.

Solimar chairman Frank Petruzzelli said both companies hope to capitalise on the high gas prices in California.

"We are also hopeful of adding reserves and production volumes through either the existing wells or through new drilling opportunities in the discovery area," he said.

Nuenco and Solimar (operator) each have a 50% stake in the Southeast Lost Hills project.