HOUSTON, Feb. 8, 2001Calpine Corp., San Jose, Calif., agreed Thursday to buy Canadian energy producer Encal Energy Ltd. for $868.8 million in stock, giving the US independent power producer a strategic natural gas transportation link between western Canada and the US.
The acquisition will be Calpine’s second in Canada. In November, Calpine purchased TriGas Exploration Inc., which has gas reserves in Acme, Irricana, and Lonepine nearly Calgary. Senior Calpine executives have said the company’s goal is to own 25% of its gas-fired electric generation needs.
The Encal acquisition will more than double Calpine’s proved and probable natural gas reserves to 1.7 tcfe of gas, net of royalties, Calpine said. Encal’s assets currently produce 230 MMcfed , net of royalties. The transaction also provides Calpine access to firm gas transportation capacity from western Canada to California and the eastern US.
The acquisition, which is expected to close during the second quarter, will boost Calpine’s net production to 390 MMcfed in North America, Calpine said, sufficient to fuel 2,300 Mw of its power fleet. Calpine operates 46 power plants and two natural gas companies in the US.
The transaction calls for Encal shareholders to receive $12/share (Can.) in Calpine stock for each share owned based on an exchange ratio to be determined prior to closing. Calpine will also assume about $330 million in Encal debt.
Calpine said holders of 34% of the fully diluted Encal shares have agreed to vote in favor of the transaction.
Calpine CEO Peter Cartwright called the Encal properties an “excellent fit” with Calpine’s natural gas-fired electric generating assets, especially in California and the central US.
The California company has 28,300 Mw of base load capacity and 5,200 Mw of peaking capacity in operation, under construction, and in announced development in 27 states and Canada.
Calpine said it expected the acquisition to add about 20 cents/share to earnings, or about 15% more than current Wall Street estimates, in 2001. The acquisition is expected to an additional 20 cents/share to Calpine’s 2002 earnings, or about 12% more than current estimates.
The $12/share offer is below Encal’s closing price of $12.39 Wednesday on the Toronto Stock Exchange, but represents a 20% premium to the company’s Jan. 26 closing price, before rumors began circulating of a possible merger.
Encal shares fell 69 cents on the Toronto Stock Exchange to $11.70 in early Thursday trading, while Calpine rose $2.04, or nearly 5% to $44 on the New York Stock Exchange.