Power producer Calpine grows in gas markets
After becoming one of North America's largest independent power companies, San Jose-based Calpine Corp. is set to become one of the region's largest natural gas producers to supply its growing fleet of plants. Tuesday the company reported acquisition of 205 bcf equivalent (bcfe) of proved natural gas reserves in three transactions for a combined $206 million (US), boosting its proved reserves to 430 bcfe.
After becoming one of North America's largest independent power companies, San Jose-based Calpine Corp. is set to become one of the region's largest natural gas producers to supply its growing fleet of plants.
Tuesday the company reported acquisition of 205 bcfe of proved natural gas reserves in three transactions for a combined $206 million (US), boosting its proved reserves to 430 bcfe.
Calpine's goal is to own about 25% of its gas needs, says Charles Chambers, vice-president of business development. In order to supply 40,000 Mw of generation by yearend 2004, Calpine will need production capacity of about 7 bcfd�or the equivalent of about 10% of US production capacity, he says.
"This is an important step for Calpine as we continue to advance our 40,000 Mw power generation program," Chambers said. The acquisitions bring the company's total production to about 130 MMcfed, although this is expected to increase to 150 MMcfed by yearend 2000.
At full production, these reserves can fuel 800-900 Mw of combined cycle, gas-fired power generation, he said.
The first transaction, with an undisclosed seller, includes three Gulf of Mexico fields and five drilling locations enhanced with 3D seismic, one of which has already been successfully drilled, the company reported. Current production from these fields is about 17 MMcfed, but output is expected to reach 23 MMcfed by yearend.
Calpine is also acquiring for $143 million (Can.) Calgary-based Quintana Minerals Canada Corp., which has reserves in British Columbia, Alberta, and Saskatchewan. The Quintana acquisition represents Calpine's first entry into the Canadian natural gas marketplace. The acquisition comes on the heels of Calpine's decision to build a 250 Mw power plant in Calgary. In addition to fueling the Calgary facility, these assets will support Calpine's US gas-fired power plants in the Northwest and California.
The Canadian assets include interests in 1,300 wells and upside potential on 180,000 net acres of undeveloped lands. Production stands at about 38 MMcfed but is expected to increase to 42 MMcfed by yearend, according to the company.
In the third transaction, Calpine acquired natural gas assets in the Piceance basin in Colorado and onshore in the Gulf Coast region from a privately held Houston company. The assets include 126 wells, 79,000 acres of undeveloped lands, and 195 potential drilling locations with historical success rates of over 90%. Production is 10 MMcfed but will increase to 20 MMcfed by yearend.
Chambers says Calpine's strategy is to acquire gas reserves in basins strategic to its power plants. Given currently prices for natural gas, he says, it is easier to buy companies rather than assets because the equity markets have discounted their value.