Calpine will more than double its natural gas reserves and gaina critical transportation link between the United States andwestern Canada after agreeing yesterday to pay $1.2 billion topurchase Calgary-based Encal Energy Ltd., whose core natural gasdrilling operations are in northeastern British Columbia and westcentral Alberta. Power producer Calpine plans a stock-for-stockexchange and would assume Encal’s debt.

When the acquisition is completed, Calpine would pick up Encal’s1 Tcfe of proved and probable natural gas reserves, giving it atotal of 1.7 Tcfe. The deal also opens access to firm gastransportation capacity from western Canada to California and theeastern U.S., and provides a management team that Calpine said willlead the company’s expansion into Canada. Calpine now has nosignificant presence in Canada, but operates 46 power plans and twonatural gas companies in the United States.

Encal currently produces approximately 230 MMcfe/d. Most of itsreserves are natural gas and associated natural gas liquids, andthe addition would increase Calpine’s net production to 390 MMcfe/din North America. Daily gas production from the total operationwould fuel nearly 2,300 MW of Calpine’s power fleet, said thecompany.

Calpine CEO Peter Cartwright said the properties were “anexcellent fit” with Calpine’s natural-gas fired electric generatingassets, “especially in California and the central U.S. Theacquisition will provide Calpine the opportunity to increase itsmargins through reduced fuel costs.”

Under terms of the definitive agreement, Encal shareholderswould receive C$12 per share in Calpine common equivalent sharesbased on an exchange rate that will be determined when the dealcloses. The transaction would be accounted for as apooling-of-interests, and would be about $.20 accretive to earningsper share in 2001 and 2001.

“This transaction provides shareholders with liquidity, valuecertainty and the opportunity to leverage into the full energyvalue chain,” said Encal CEO David D. Johnson. “It is alsoextremely positive for our employees, who will be participating inbuilding a substantial natural gas presence for Calpine in Canada.”

The C$12 per share offer was below Encal’s closing price ofC$12.39 on Wednesday’s Toronto Stock Exchange, but stock had risen20% from a week ago when rumors began circulating last week thatEncal was in merger talks with another company.

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