Indicative of its continuing efforts to shed debt, Calpine Corp. Monday said it has agreed to sell all of its 221 Bcfe proved natural gas and oil reserves to PrimeWest Energy Trust for C$825 million, or about US$625 million. Calpine said it expects to close the sale early next month, pending “regulatory approval and other conditions of closing.”

The power plant developer said the proceeds of the sale will be used “to repay the amount outstanding under the existing $500 million first lien indebtedness, with remaining proceeds to be used in accordance with the asset sale provisions of Calpine’s existing bond indentures.” Calpine expects to issue up to $700 million of new first lien debt, following the repayment of its existing first lien indebtedness. Calpine has retained Waterous & Co. as its advisor for the sale.

The Canadian assets being sold currently represent 61 MMcfe/d of production, along with the sale of Calpine’s 25% interest in 80 Bcfe of proved reserves (net of royalties) and 32 net MMcfe/d owned by the Calpine Natural Gas Trust.

Calpine’s CFO Bob Kelly called the deal “an excellent opportunity” for Calpine to capture significant value for its natural gas assets during what he called “attractive market conditions.” It also allows Calpine to move closer to reaching its goal of having $3 billion of cash and liquidity on hand by year’s end, Kelly said.

Calgary-based PrimeWest Energy Trust, valued at $1.4 billion, calls itself a “conventional oil and gas royalty trust actively managed to generate monthly cash distributions for unitholders,” not unlike Calpine’s smaller Calpine Canadian Power Income Fund. PrimeWest is primarily focused on the western Canadian sedimentary basin and is a producer of 30,000 BOE/d, operating as one of North America’s largest energy trusts. It is traded on the Toronto and New York Stock Exchanges.

In a separate announcement out of Calgary, PrimeWest characterized the deal as closing with a value of $806 million — $649 million of which was attributed to the oil and gas reserves, $48 million to undeveloped land and seismic data, $35 million to third-party processing income, and $74 million tied to the purchase of the units of Calpine Natural Gas Trust. PrimeWest said it expected the sale to close Sept. 2, subject to regulatory and other conditions.

PrimeWest said the deal includes 14,500 Boe/d of what it called “high quality predominantly liquids-rich gas production” in west-central and southern Alberta, Canada.

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