Calpine buys more natural gas reserves

Nov. 16, 2000—In its quest to ensure natural gas supply, Calpine Corp. will acquire all of the shares outstanding of Canadian-based TriGas Exploration Inc. for about $100.4 million including debt.

The deal announced last month resulted in 96.5% of the shares outstanding being deposited and now acquired by Calpine. The board of directors has been replaced with Calpine nominees and Calpine says it will proceed in accordance to Alberta law to acquire the balance of the shares not deposited.

Calpine, an independent power plant developer and operator, has been on the prowl for natural gas reserves and production for 2 years to insure supply for its mushrooming fleet of gas-fired power plants.

This latest acquisition will give the San Jose, Calif. based Calpine ownership of 30 MMcfde of natural gas located in areas (Acme, Irricana and Lonepine) close to Calgary. One of Calpine’s 250 Mw power plants in construction near Calgary can be served by TriGas’ gas production.

Calpine is one of the few power companies to pursue natural gas reserves and production in connection with its power plant development. Prior to the TriGas acquisition, Calpine had purchased proven natural gas reserves of up to 430 bcfe.

The company currently has 50 power plants, or 4,639 Mw in operation and another 11,065 Mw in construction. Calpine’s expressed goal is to own 40,000 Mw in operation.

“For the plants under construction there is gas supply assured or the plants wouldn’t be built,” says Fred Schultz, analyst with Raymond James & Associates in Houston. “Calpine’s problem lies down the road with securing gas.”

By 2004 if the company gets all the plants operating as predicted, Calpine will need 1 tcfd to just operate its own plants. That is almost 5% of the entire consumption of gas in the US, he notes.

The company is pursuing agreements with natural gas companies. Just last month, it inked a contract with EOG Resources Inc. for 10 MMcfd starting Jan. 1, 2001 through Dec. 31, 2001. The novel contract links the daily price of natural gas to the price of electricity.

“I think we will see more of these kinds of contracts tied to the electric price,” says Schultz.

The electric producers can get cheaper gas averaged over a year and the gas company can get a price north of what they could get if they weren’t able to share in the upside of the electricity price spikes, he explains. This first contract is kind of a “test”, Schultz says.

Calpine is also signing long term contracts for gas transportation.

Two weeks ago, the company signed a transportation and storage agreement with Kinder Morgan Texas Pipeline Inc., a unit of Kinder Morgan Inc., for 375,000 Mmbtu of firm natural gas service for 10 years beginning in 2001.