Trying to tap one of its most valuable assets to improve its still struggling balance sheet, San Jose, CA-based Calpine Corp. announced Wednesday it plans to establish a new trust centered on its oil/natural gas reserves in western Canada. The company said it has filed a preliminary prospectus with the provincial securities commissions in Canada to form Calpine Natural Gas Trust (CNG Trust).

These are the initial steps leading to an “initial public offering” (IPO), Calpine said, adding that it intends to keep 25% of the trust units sold. Potentially about 8% or 9% of Calpine’s 1 Tcf of reserves in the United States and Canada would be part of the trust, according to a company spokesperson in San Jose.

“Calpine’s participation in the CNG Trust will allow it to increase its competitiveness in the acquisition and development of additional natural gas reserves in Canada to fuel its power generation portfolio in North America,” the company said. “The proceeds generated from CNG Trust will be used for general corporate purposes.”

The establishment of trusts is a common financing mechanism in Canada and carries considerable tax advantages, according to a Calpine spokesperson. It is established with the equivalent of an IPO, and Calpine, in retaining a 25% interest, will have members on the trust board and be able to influence the operation of the reserves, while the parent company gets proceeds to help improve its liquidity. Improving Calpine’s liquidity has been part of a company-wide initiative for the past 18 months in the wake the Enron and wholesale power market meltdowns.

Calpine’s spokesperson said there is no current estimated value of the trust, nor is there a current timetable for how soon it will be put in place, but based on an earlier one Calpine constructed, it should be a matter of a few months.

“CNG Trust intends to acquire select Calpine-owned natural gas and crude oil properties in several natural gas and oil fields throughout Alberta, Canada, including interests in the Markerville, Sylvan Lake and Innistall areas,” Calpine said. “The average daily net production of the initial properties for the six months ending June 30, 2003 was approximately 28 MMcf/d natural gas equivalent, with proven reserves of approximately 83 Bcf natural gas equivalent.”

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