08-02-01 US power producer Calpine is buying Encal Energy of Calgary in a $ 1.8-bn friendly deal that guarantees a secure supply of Canadian natural gas to fuel the California company's power plants in Canada and the United States. Under the deal, endorsed by Encal's board and biggest shareholder, Calpine will pay $ 12 in Calpine shares for each share of Encal, a mid-sized oil and natural gas company based in Calgary.
With assumed debt of $ 485 mm, the transaction is valued at about $ 1.8 bn, but the stock portion of the deal works out to about $ 1.3 bn. The purchase gives Calpine, a developer of independent power plants across North America, a secure source of gas to fuel about 2,400 MW of power capacity. The deal adds about 230 mm cfpd of gas to Calpine's net production and about 1 tcf of proved and probable gas resources.
Encal is British Columbia's biggest oil producer and also pumps gas from wells in west-central Alberta and north-eastern British Columbia. A little more than half its energy production is natural gas.

Calpine, based in San Jose, California, said the Encal purchase also gives the US company access to firm gas pipelines from Western Canada to California and the eastern United States. "Encal's properties are an excellent fit with Calpine's power projects, especially in California and the central US," Calpine president Peter Cartwright said in a release.
"This acquisition will provide Calpine with the opportunity to increase its margins through reduced fuel costs." David Johnson, president of Encal, said the deal "provides shareholders with liquidity, value certainty and the opportunity to leverage into the full energy value chain." "It is also extremely positive for our employees, who will be participating in building a substantial natural gas presence for Calpine in Canada."

Industry analyst Jeff Fiell said the takeover continues a trend of US acquisitions in the Canadian oil patch in recent years, in part because of the cheap Canadian dollar but also because of the low stock prices of Canadian energy firms. He also suggested Calpine may be preparing to make more Canadian acquisitions.
"They're aggressively paying up for these companies so that would lead me to believe they're not done yet," said Fiell, with Canaccord Capital in Calgary. "As long as the public equity valuation of oil and gas producers remains as low as it is, companies such as electric generators like Calpine... find it more economical to buy these companies than spend the money on the full cycle and drill their own wells and grow that way," he said in an interview with ROBTv, a specialty business cable channel based in Toronto.

The deal has been backed by the boards of both companies, as well as Encal's largest shareholder, the Ontario Teachers' Pension Plan Board, and the Calgary company's directors and officers. Collectively, they own about 34 % of the stock.
Encal has agreed to pay a break-up fee if the deal falls through. Calpine also has the right to match any competing bids that may come forward. The transaction is the third in the last year by Calpine to expand its presence in the Canada, where the California company is building a power plant near Calgary and has struck a deal with B.C. Hydro on a joint-venture gas-fired generating plant for Vancouver Island.
In October, Calpine acquired Calgary-based gas producer TriGas Exploration in a $ 156-mm deal, including debt. TriGas had 30 mm cfpd of natural gas production. Last summer, Calpine paid $ 143 mm for Quintana Minerals Canada, a private company that produced 48 mm cfpd of gas.
Calpine has said it plans to operate 40,000 MW of generating capacity by 2004 and wants to own about 25 % of its daily natural gas needs. In a separate development, Calpine said it has signed a 10-year deal to sell power to California, which has been struggling with power shortages and blackouts. The $ 4.6-bn contract starts in October and commits Calpine to sell power directly to California's Department of Water Resources.