Calpine May Sell Some Gas Fields to Reduce Debt

Calpine Corp., the struggling San Jose-based power-plant builder, said Thursday that it might sell natural gas fields in the U.S. and Canada to shrink its debt.

The potential sale is the latest move by Calpine to shore up liquidity as it grapples with a dismal merchant energy market burdened by low power prices and overcapacity.

The assets being evaluated for sale include about 230 billion cubic feet of reserves that produce 70 million cubic feet of natural gas daily in Alberta, Canada, Calpine said.

In addition, the company is considering unloading unidentified U.S. natural gas holdings and a 25% stake in reserves owned by Calpine Natural Gas Trust, a Calgary, Canada-based trust that buys and develops natural gas fields.

Calpine uses natural gas to generate electricity at most of the power plants it operates in 21 states, Canada and Britain. The company owns gas fields to lock in fuel costs. In all, Calpine owns more than 800 billion cubic feet of natural gas reserves in Canada, California, the Rocky Mountain region and the Gulf Coast.

The possible transactions would take advantage of soaring natural gas prices to boost Calpine’s cash and credit. New York gas futures prices have averaged $5.89 per million British thermal units this year, almost 40% above the five-year average.

“Selling gas at the top of the market makes a whole lot of sense, and they need the liquidity,” said Gordon Howald, an analyst at Calyon Securities Inc., who has a “buy” rating on the shares. “The company has limited ability to raise money on the capital markets.”

Calpine can expect to get $293.9 million to $367.4 million for the Alberta fields based on recent sales, said Frank Sayer, president of Sayer Securities Ltd., who tracks sales of Canadian oil and natural gas assets.

Shares of Calpine rose 13 cents, or 3%, to $3.93 on the New York Stock Exchange.

Calpine’s stock traded close to $60 a share in early 2001 when power prices were at record levels and blackouts plagued California. In the last year, the shares have lost 28% of their value.

Calpine, which has been selling power-supply contracts to raise cash, is one of several power companies forced to deal with an industrywide credit crunch after Enron Corp.’s collapse in December 2001.

A wave of refinancings in the last year has averted fears of a cash crunch in the near term, but Calpine continues to struggle with a glut of power capacity in the United States and with “low spark spreads,” or electricity profit margins.

Related to the potential sale, Calpine said it was working to restructure some power contracts from a fixed-price arrangement to deals based on variable natural gas prices.

The company said it would use proceeds from a sale of gas reserves to repay $500 million of first-lien debt. Any remaining proceeds would be used to comply with asset sale provisions of its bond indentures.

Once it repays its first-lien debt, Calpine would be able to issue about $700 million in new first-lien debt.

Separately, the company said it had placed its 600-megawatt Riverside Energy Center in Beloit, Wis., into commercial operation. The plant has two nine-year deals to supply electricity to two customers.

Bloomberg News and Reuters were used in compiling this report.