Calpine Corp. plans to sue Houston-based natural gas producer Rosetta Resources over the power plant developer's past sale of its natural gas reserves to Rosetta, alleging the assets' valuation was improperly handled to short-change Calpine.
Calpine alleges it was cheated out of about $400 million, according to a disclosure statement filed Wednesday as part of its bankruptcy proceeding.
As part of its restructuring plan, Calpine said its internal investigation found "the price obtained [for its oil/gas assets] was substantially below fair market value," and the power plant developer/operator estimates the sales price was about $400 million to low.
However, a report by analyst John Gerdes of the SunTrust Robinson Humphrey/Gerdes Group disagreed. Gerdes wrote that based on its analysis of the deal "Rosetta did indeed pay full and fair value for [the Calpine] assets." It added the caveat that news of the pending litigation is "likely to have a material negative impact" on Rosetta. Its NASDAQ-traded stock closed at $22.20, down $2.03, or 8.38%, on Thursday.
Calpine's outside legal counsel said the company had not yet filed its lawsuit, and Calpine Chief Counsel Gregory Doody added that the company intends to do so "in the near future."
Calpine acquired the bulk of its natural gas reserves in 1999 when it purchased Sheridan Energy. Bill Berilgen, Calpine's former senior executive running that part of the company and now Rosetta CEO, has said in presentations following the sale that Calpine's liquidity needs forced it, beginning in 2002, to sell portions of its assets and eventually what remained in April 2005.
In 1999 Calpine offered $41 million, or $5.50/share, in cash to purchase Houston-based Sheridan. Sheridan had reported a loss in the second quarter of that year just prior to the sale announcement.
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