In an effort to strengthen its liquidity in these tumultuous times for the energy industry, Calpine Corp. said late last week that it has entered into an agreement to sell certain non-strategic Canadian oil and gas properties for $81 million (C$125 million). In addition, the San Jose, CA-based company secured $106 million in non-recourse project financing to give it the leverage to complete construction of its 300 MW Blue Spruce Energy Center in Aurora, CO, east of Denver.

Calpine inked the asset sale agreement with NAL Resources on behalf of NAL Oil & Gas Trust and another institutional investor. Located in central Alberta, the assets represent 60 Bcfe of net proved reserves, of which 70% are oil and liquids. Calpine estimated current net production from the assets at 19 MMcfe/d. The oil properties are located 25 miles west of Red Deer and include 18,845 developed acres and 9,920 undeveloped acres, with more than 225 producing wells.

“Calpine remains committed to strengthening liquidity while retaining those assets that will continue to provide long-term value to our shareholders and to Calpine’s core power generation business,” stated Bob Kelly, Calpine CFO. “While we continue to evaluate opportunities for the sale of other non-strategic assets, Calpine Natural Gas remains an active participant in the North American natural gas and power markets.”

Under the terms of the agreement, approximately 42% of the acquisition is subject to rights of first refusal, which expire on Sept. 28.

With the financing secured for the Blue Spruce Energy Center, Calpine said it hopes to begin energy deliveries from the plant in May 2003 When completed, the entire output of the natural gas-fired peaking facility will be sold to the Public Service Co. of Colorado under a 10-year tolling agreement.

When completed, the entire output of the natural gas-fired peaking facility will be sold to the Public Service Co. of Colorado under a 10-year tolling agreement. Energy deliveries are expected to begin in May 2003.

The project, currently under construction, will interconnect with Public Service’s existing transmission lines, with access to nearby natural gas pipelines serving the region. Under the 10-year tolling agreement, Public Service will have dispatch rights for all of the capacity and energy produced by the facility, and also will manage the purchase and delivery of fuel used at the facility. Output will be added directly to Public Service’s grid when power is needed the most. A group of banks led by Credit Lyonnaise provided the new project financing for the now-estimated $150 million peaking facility, under a six-year, non-recourse construction and term-loan facility.

Calpine also has priced its initial public offering (IPO) for its new Canadian-based Calpine Power Income Fund, which will have a market valuation of approximately C$520 million. The IPO, which was scheduled to close last week, will indirectly own a 7% interest in Calpine Power LP through Class A Priority Units, with Calpine Corp. owning the remaining interest in Class B Subordinated Units.

Calpine Power LP owns interests in three of the corporation’s Canadian power-generating units, which have a combined generating capacity of 550 MW. The assets within the Calpine Power Income Fund will include the 225 MW Island Cogeneration Facility located in British Columbia near the Campbell River, and the 300 MW combined-cycle Calgary Energy Centre, currently under construction in Calgary. The Calpine Power Income Fund also will make a loan to a Calpine subsidiary, which indirectly holds a half-interest in the 50 MW Whitby Cogeneration Facility, located in Ontario.

The IPO will issue 23 million of its 52 million total Trust Units outstanding to the public for gross proceeds of C$230 million. Calpine would retain the remaining units for a potential future sale. The underwriters have an option to purchase up to 3.45 million units for up to 30 days following the offering’s closing. The units were priced at C$10 per unit, to initially yield 9.35% a year.

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