Calpine Plans Sale of Assets

Calpine Corp., the owner of power plants in 21 states, agreed Wednesday to sell its U.S. oil and natural-gas properties for $1.05 billion to undisclosed private investors, advancing a plan to cut $3 billion of debt.

A new company created by Calpine, Rosetta Resources Inc., will sell shares privately and use the proceeds to purchase the assets, San Jose-based Calpine said in a statement. After the close of the sale, expected July 7, Calpine will no longer hold any interest in Rosetta.

In May, Calpine said it was considering selling its oil and gas assets to repay debt due through 2007, as high energy prices led to a surge in demand for drilling properties. The sale, which is above analyst estimates of its value, may buy Calpine time to sell more assets and raise its ability to cut debt, said Michael Wang, an analyst at John S. Herold Inc.

“One billion is a very good price,� said Wang, who doesn’t own the stock and has no rating on it. “The company is still highly leveraged and they need to do more. This latest sale delays the day of reckoning.�

Calpine had debt of about $18 billion as of May 31, according to data compiled by Bloomberg. Analysts value Calpine’s remaining power-plant assets at $12 billion to $18 billion. The company has $2 billion of debt maturing in 2007 and $2 billion due in 2008.

After closing on this sale and that of the Saltend plant in Britain, Calpine will have cut its debt by $2.97 billion, company spokeswoman Katherine Potter said. International Power and Japan’s Mitsui & Co. agreed in May to buy Saltend for $893 million.

Rosetta will raise $725 million with the private sale of 45.3 million common shares, Calpine spokesman Bill Highlander said. The balance of the purchase price will come from a $325-million credit line, the company said. Potter declined to name the investors involved.

The company was able to get a higher price by selling shares in a private placement, Wang said. A strategic buyer would probably have paid only about $800 million for the assets, he said.

The sale includes the equivalent of 383 billion cubic feet of natural gas as of May 1, Calpine said.

Shares of Calpine fell 12 cents to $3.48. They have fallen 12% this year.

Founder and Chief Executive Peter Cartwright, 75, expanded Calpine’s fleet of power plants in the late 1990s, after federal regulators passed rules forcing utilities to allow competition in their service areas. The company’s debt jumped eightfold on borrowing to pay for the new generators.

A glut of U.S. electricity capacity and soaring costs to fuel Calpine’s natural-gas-fired generators made the company’s power stations unprofitable to run more than half the time.