Under the deal, state-owned Sonatrach Petroleum Corp. will market gas from the block 405b property that First Calgary is developing in Algeria's Berkine Basin. The price is to be linked to European oil prices, the company said.

The deal essentially transforms the Calgary-based international junior energy company from a pure exploration business to a natural gas producer.

"Without this agreement, First Calgary would not be able to sell a molecule of gas or generate any revenue," said analyst Memet Kont of UBS Research.

"We see this as a major stepping stone towards commercialization and should remove a substantial part of the risk the market was assigning to the project," said Kont, adding he expects to see a steady stream of updates from First Calgary in the coming weeks.

The low cost of production in Algeria should allow First Calgary to command "substantial netbacks" in its natural gas sales, Kont said.

The company holds rights to wide areas of the North African country, and aims to finalize engineering and construction contracts next year and have its MLE gas project functioning by 2009. The design, estimated to cost between US$800 million and $1 billion, includes new export pipelines which must travel 140 kilometres to tie into a national grid.

Tuesday's deal drastically reduces the project risk and makes First Calgary a potential takeover candidate.

"We wouldn't be surprised to see majors approaching them to set up some sort of joint venture partnership or we could also see some majors approaching to take them out," said Kont.

It also silences the naysayers who questioned whether or not a relationship actually existed between First Calgary and the Algerian government.

The Alberta-based company said in July that the project needed the marketing arrangement in addition to financing and more solid reserve estimates.

First Calgary raised US$143 million in new equity in April, and is working on a debt issue. That will likely happen early in 2007.

The company faces a year-end deadline for its five-year exploration phase, after which areas of block 405b without discoveries will be relinquished. Drilling is continuing on a number of wells to prove reserves and retain as much land as possible.

First Calgary stock closed Tuesday at C$8 on the Toronto Stock Exchange, up 16 cents on the day with a 52-week range between $12.60 and $5.70. The stock reached almost $25 in early 2005 before failing to line up a development partner or buyer for its Algerian oil and gas assets.