Calpine may sell Canada, U.S. natgas reserves

NEW YORK -- - Calpine Corp. may sell natural gas reserves in Alberta, Canada, and the United States to raise cash and pay down debt, the independent power producer said recently.

The potential move would be the latest by the San Jose, California, company to shore up liquidity as it grapples with a dismal merchant energy market burdened by low power prices and overcapacity.

Shares of Calpine were up 3.6 percent in afternoon trade.

The Alberta reserves represent about 230 billion cubic feet equivalent of proved reserves and produce about 70 million cubic feet equivalent of gas per day.

Calpine said it has not identified the U.S. reserves.

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

It retained Waterous & Co. to advise on the sale of the Canadian gas reserves.

Calpine also said it may sell its 25 percent stake in the 80 billion cubic feet equivalent of proved reserves owned by the Calpine Natural Gas Trust, which acquires and develops natural gas reserves. The Calgary-based trust, in response, said it formed a special committee to look at all options including a potential sale or merger.

Selling natural gas reserves in the current market makes sense since natural gas reserves have been selling for high prices recently, Calyon Securities analyst Gordon Howald said in a research note.

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 up to about $700 million in new first-lien debt.

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

A wave of refinancings over the past 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 "low spark spreads," or electricity profit margins.

Calpine is one of several power companies forced to deal with an industrywide credit crunch following Enron Corp.'s collapse, which triggered the failure of the energy trading market.