The U.S. Bankruptcy Court, Southern District of New York, Thursday rejected a request by Rosetta Resources Inc. to dismiss Calpine Corp.’s allegations of fraud by the oil and gas producer. Calpine made the charges as part of its ongoing Chapter 11 bankruptcy proceeding. A trial is now expected in December.

Calpine Corp. at one time owned Rosetta’s principal North American oil and gas reserves. Rosetta argued to the bankruptcy court that Calpine’s claims are barred as a matter of law by the expected full payment of Calpine’s creditors under the company’s proposed reorganization plan, but Judge Burton Lifland said he dismissed the Rosetta request because of the uncertainty surrounding Calpine creditors’ chances of making a full recovery.

A report by analyst John Gerdes of the SunTrust Robinson Humphrey/Gerdes Group said a trial is likely in the bankruptcy court on the Rosetta issues, which the judge found premature at this stage of the Chapter 11 process.

Voting among creditors is now under way and due to be completed by the end of November, and a third-party evaluation of Calpine’s reorganization plan is due a week earlier in November. The court proceeding leading to the judge’s ruling on the plan begins Dec. 17.

Gerdes’ report noted that Rosetta is trading at a 30% discount, “has slightly better capital productivity, inline growth, slightly higher margins, and 90% upside” to the analyst’s target price. He labeled the stock a “buy.”

The two companies in early August reached a partial settlement on many of the issues that have divided them since Calpine sold its gas assets to Rosetta (see Daily GPI, Aug. 9). Calpine originally alleged that it was cheated out of about $400 million, according to a disclosure statement filed June 20 as part of its bankruptcy proceeding, and at that time said it was suing Rosetta.

For its legal argument in the bankruptcy court challenge, Rosetta contended that it is “highly likely” that Calpine creditors will receive full repayment. The judge obviously disagreed with that at this time.

In its partial settlement, Rosetta said that with court approval, both it and Calpine will, “without prejudice,” reach agreement on four outstanding claims:

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