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Calpine Oil/Gas Spin-Off Prepares for 50 Million-Share IPO

The former Sheridan Energy that became a major part of Calpine Natural Gas, now spun off earlier in the year and re-created as Houston-based Rosetta Resources last Friday filed an S-1 application with the Securities and Exchange Commission in preparation of an initial public offering (IPO) of 50 million shares priced at $16/share, according to a Rosetta senior executive.

The company hopes to raise more than $1.1 billion to pay off more than $900 million in financing required to purchase the unit from Calpine and to support $87 million of working capital and pay for more than $50 million transaction costs.

Rosetta hopes to go public early in the first quarter next year, said Charles Chambers, the company's executive vice president for corporate development. The process at the SEC is expected to take up to 90 days, he said. In the meantime, Chambers said Rosetta stock is trading above the identified $16/share value on the so-called "Portal Market," which is the private trading among institutional investors, or "QUIBs" (qualified institutional buyers).

After losing money as a Calpine unit last year, so far in 2005 for the first half, the company reported modest profits of $18.7 million, a 31% decrease over the same period in 2004, according to its federal financial filings. Production has dropped below 100 MMcf/d this year.

Rosetta bills itself as an "independent oil and gas company engaged in the acquisition, exploration, development and production of oil and gas properties in North America." It has a major technical office in Denver, and field offices in Rio Vista, CA, and Laredo, TX.

Former Sheridan and Calpine gas leader, Bill Berilgen, Rosetta's CEO, outlined the IPO for an industry audience in August at an Independent Petroleum Association of America (IPAA) meeting. Calpine's managers from its former natural gas and oil production operations bought the unit and created Rosetta in a deal that closed last July.

Rosetta reported to the SEC that it has 383 Bcfe of which 96% is gas reserves, after Calpine over several years built up and then sold off gas reserves. From reserves at the 230 Bcf level when Sheridan Energy was acquired until it peaked at more than 1.2 Tcf of natural gas in 2001, Calpine quickly boosted its gas play. Subsequently it sold off 670 Bcf, according to Berilgen in his presentation to IPAA. The sales coincided with Calpine's increasing financial problems.

The major producing areas for the company are in the Sacramento Delta area of northern California, and in south Texas and offshore the Gulf of Mexico. Some 96% of the company's reserves are natural gas; it has a 12-year reserve life, producing about 88 MMcf/d. Historically, Berilgen said the company's success rate in drilling is 80%, and it has operated with about 100 company employees.

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