Calpine to sell US oil and gas assets for $1bn

Calpine Corp is to sell all its US oil and gas exploration and production assets for $1.05 billion to Rosetta Resources, a newly formed subsidiary of the California-based energy company.

Calpine expects the sale to close on July 7, after which time it will not own any interest in Rosetta. Rosetta plans to fund the purchase by issuing around 45 million shares for $725 million and setting up a new $325 million credit facility.

As of May 1, Calpine’s proved oil and gas reserves totalled 383 billion cubic feet equivalent. The sale price therefore values the assets at $2.74 per thousand cubic feet equivalent (mcfe).

Calpine has obtained a very good price, says Hugh Welton, a senior director in the global power group at rating agency Fitch in New York.

“Fitch would tend to put a conservative value on these kind of assets of between $1.30 and $2.00 per mcfe,” he says. “But it is not surprising the value is so high, given how high oil and natural gas prices are.”

There is presumably private equity behind the Rosetta subsidiary, says Welton. But Calpine has not disclosed who the investors are.

The planned sale is part of the programme that Calpine – one of the most debt-laden US energy companies – announced in late May to reduce its debt by $3 billion by the end of 2005. The company’s total debt stood at $18 billion before it launched the programme.

As part of the debt-reduction strategy, Calpine is also negotiating the sale of four gas-fired power plants it values at $357 million, representing 850 megawatts of capacity. Three of the plants are located in the Pennsylvania-New Jersey-Maryland power market, while the fourth is in Illinois.

Despite these moves, rating agency Standard & Poor’s (S&P) recently expressed concern over Calpine’s refinancing risk. In a study of 21 US energy companies published in late June, S&P concluded that the 21 companies have all managed their refinancing needs well over the next four years.

However, the report said: “The only company that may be of concern is Calpine, which remains exposed to the most refinancing risk of the group (as measured as a percent of total capitalisation) and is also exposed to volatile cash flows.” Calpine’s 2005–2008 maturities represent 26.4% of its total capitalisation, according to S&P.