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Calpine on Buying, Building, Earning Spree

Calpine on Buying, Building, Earning Spree

San Jose, CA-based Calpine Corp. continued its buying/building spree last week, acquiring 205 Bcf of natural gas reserves in three different North American locations for $206 million, bringing the aggressive merchant electric generating plant developer/owner/operator's portfolio of total proved serves to 430 Bcf. The move followed Monday's announcement of Second quarter earnings increase of 176%, compared to 2Q of last year, and a new $2.5 billion revolving credit facility with a consortium of banks to pay for Calpine's large portfolio of power projects in the United States

With the additional acquisition of proven gas reserves Calpine will boost its daily production from 130 to 150 MMcf/d. At full production, the total reserves can fuel 800 to 900 MW of combined-cycle, gas-fired power generation, Calpine officials said.

"Our goal is to control up to 25% of the gas supplies needed for our power plants," said Bill Highlander, a Calpine vice president. "So as we open up new plants we'll need more supplies. We'll be looking to make even larger gas purchases in the future."

The supplies bought most recently are in the Gulf of Mexico, Western Canada and a combination of Colorado and onshore Gulf Coast reserves from a Houston-based company. There are five drilling locations in the Gulf, with current production of approximately 17 MMcf/d, increasing to 23 MMcf/d by year-end 2000.

The Canadian reserves are spread across 180,000 acres in the provinces of British Columbia, Alberta and Saskatchewan, with 1,300 wells expected to produce 38 MMcf/d now increasing to 42 MMcf/d by year-end 2000. Piceance Basin reserves in Colorado and the onshore Gulf Coast supplies are expected to double from 10 to 20 MMcf/d by the end of this year. The assets include 126 wells, 79,000 acres of undeveloped lands and 195 potential drilling locations with historical success rates of more than 90%, Calpine said.

"This is an important step for Calpine as we continue to advance our 40,000 MW power generation program," said Charles Chambers, Calpine's business development vice president. "In addition to enhancing our in-depth fuels capabilities, these acquisitions provide us access to three strategic gas markets and strengthen our position as a premier power provider."

In its earnings announcement Monday, Calpine reported second quarter net income of $51.7 million, compared with $18.7 million before extraordinary charges for the second quarter last year. Diluted earnings-per-share were up 136 % to 37 cents/share from 16 cents for the same period last year. Revenue increased 85 % to $363.7 million from $196.6 million a year ago.

The latest construction line of credit involves a consortium of banks, including Bank of Nova Scotia and Credit Suisse First Boston, as lead arrangers. The four-year construction facility will be refinanced in the longer-term capital markets prior to its maturity. Calpine said it expected to finalize this latest construction finance vehicle by the end of September.

Along with a $1 billion credit line announced last November, Calpine will have a total of $3.5 billion as revolving credit facilities to pay for its expansion program.

"Portfolio financing significantly lowers the cost of capital for Calpine and dramatically decreases the time required to finance individual projects," Calpine officials said in announcing the latest one.

Richard Nemec, Los Angeles

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