Calpine, Rosetta enter agreement on lease assumption stipulation following court order mistake

By Caroline Salls

Pittsburgh, Nov. 6 - Calpine Corp. and Rosetta Resources Inc. entered into an agreement regarding a motion to approve a stipulation with the Department of Justice to extend Calpine's deadline to reject oil and gas leases issued by the United States after the motion was mistakenly approved before consideration of Rosetta's limited objection, according to a Rosetta news release.

The company wants to extend the assumption or rejection deadline to Jan. 31 from Nov. 15.

According to the release, on Oct. 30, the U.S. Bankruptcy Court for the Southern District of New York mistakenly approved the stipulation before considering Rosetta's objection.

As a result, Rosetta and Calpine have agreed that unless they negotiate a new order that says approval of the stipulation will not affect Rosetta's asserted interest in the oil and gas leases, the court will conduct a hearing on the proposed stipulation and Rosetta's objection as originally scheduled on Nov. 15.

Rosetta said it is also seeking clarification that the United States will not take any action on Rosetta's asserted rights and interests in the oil and gas leases without further order of the court.

Rosetta acquired Calpine's oil and gas production business through a July 7, 2005 purchase agreement.

According to the limited objection, although the United States leases were fully conveyed to Rosetta by Calpine before its bankruptcy filing, if Calpine is later found to own any interests in the leases, it is in Rosetta's best interest for Calpine to preserve its ability to convey the remaining leases to Rosetta.

Rosetta's objection asks the court to order that the approval of the proposed stipulation is without prejudice to Rosetta's interests in the leases, including Rosetta's assertion that it now owns these properties, and that the United States be required to seek further approval of the court before taking any action with respect to Rosetta's asserted interest in these leases.

Rosetta further contends in its objection that the oil and gas leases are not unexpired leases subject to assumption or rejection under the bankruptcy code and, therefore, that the stipulation is unnecessary to preserve Calpine's interest in these properties even if the United States leases are property of Calpine's bankruptcy estate.

In addition, Rosetta's limited objection raises concerns regarding Calpine's ability and willingness to perform its limited continuing obligations under the leases and the risks posed to both Rosetta and Calpine's bankruptcy estate as a result of Calpine's continuing failure to comply with the ongoing obligations.

The release said Calpine filed a similar motion for approval of a proposed stipulation with the California State Lands Commission to extend the date by which Calpine must obtain a court order to allow it to assume any interests it continues to own in State of California-issued oil and gas leases to Jan. 31 from Nov. 15.

Rosetta said it intends to take action to ensure its rights are fully protected under the State of California stipulation.

On July 14, in response to objections to Calpine's original motion to assume some oil and gas leases, Calpine withdrew the United States and State of California leases from the list of oil and gas leases that were the subject of that motion.

Calpine entered into an agreement with both the Department of Justice and the State of California to extend the lease assumption deadline to Nov. 15.

Calpine, a San Jose, Calif.-based power company, filed for bankruptcy on Dec. 20, 2005. Its Chapter 11 case number is 05-60200.

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