Message-ID: <16737882.1075840208051.JavaMail.evans@thyme>
Date: Fri, 8 Sep 2000 09:44:00 -0700 (PDT)
From: jeffrey.sherrick@enron.com
To: kenneth.lay@enron.com
Subject: Project Janus
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X-From: Jeffrey Sherrick
X-To: Kenneth Lay
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Ken,  I thought it would be better if I typed my thoughts for you since my 
hand writing can be somewhat difficult to read. 

Before you decide the methodology for moving our project beyond the D. Ambani 
phone call, I would like to share a few thoughts that I believe reduces the 
risk of Enron being an E&P buyer.  I know the implications of making a large 
E&P purchase are far greater than just the cash requirement, but I believe 
with the following changes to the plan presented yesterday and a little 3rd 
party information, you may feel more comfortable making this decision.  Under 
the buy/sell arrangement a small risk of buying will always be present, but I 
believe the risk reward ratio in this case has very strong merit.  My goals 
for Enron are three fold; a) sale the assets, b) get cash in the door before 
year-end, and c) get fair value for the assets given the current situation.  
My comments touch upon five topics:

1)  Reverse the buy/sell process giving Enron the control vote
2)  Pay the Penalty
3) Contact someone at the Janus Fund to talk about Reliance's Financial 
condition
4) Thoughts on non-Reliance bidder's
5) Information and the future process

Reverse the Buy/Sell Process:   The plan outlined yesterday using the 
buy/sell scenario is the best scenario for achieving all of our goals.  The 
risk for Enron which is most troubling is the possibility of being a buyer 
versus a desire to be a seller.  I firmly believe if we make one change to 
the plan as described below, we can increase our probability of a successful 
sale to near 100%.  If we don't use a but/sell arrangement I am concerned 
that we will not get fair value or cash in the door this year.   In fact, I 
suspect we will elect not to sell because of contract or valuation problems, 
which in effect leave us with a stranded asset and a lot of employee 
problems.   

When you talk with Dhirubhai we can propose the buy/sell concept  with RIL 
making the first bid to purchase.  Enron then has the right to sell at that 
price or increase the bid by 5% and RiL must sell.  Since we are now in the 
control position the 10% tax logic we talked about yesterday no longer is 
valid, so I would describe the 5% as a control premium.  The only reason we 
want the buy option is in the event they offer a very low number.  I would 
suspect them to bid in the $550 to $650 million range.  They just turned down 
my offer to purchase their assets at $450mm and indicated we were 
substantially below their value when I tried to engage them in a dialogue.  
They know Enron paid $620 million just 12 months ago for the same position.  
We know they internally have reserves booked higher than ours and have a 
strong desire to have a substantial upstream position that they can control.  
It is possible that RIL would bid less than $500 million but I put that 
probability at less than one percent.  This reduces Enron's risk dramatically 
and increases our probability of getting all of our objectives met. We also 
get an added benefit, from pitching the deal with RIL as the first bidder,  
because this will  strengthen the perception that we (Enron) want to be the 
buyer, which is a key perception to have a fair auction with only one 
legitimate buyer, Reliance.  

If we  pitch the deal as suggested above,  we need to recognise going in that 
they probably want the control position as well.  I believe they would pay a 
very large value for these assets due to their tax position and by bidding 
first they take great risk of leaving a lot of money on the table or not 
getting the deal at all.   I would suspect that they will at a minimum 
suggest we flip a coin to see who bids first.  Initially I would just say no, 
but we may need to deal with this issue and probably should decide early on 
if it is a deal killer.  If we did flip a coin, we would wait until the 
documents were final and the escrow agreement was signed so there would be no 
backing out without a penalty.  In this scenario it would actually help get a 
more impartial document done quicker if neither party knew the bidding 
sequence until after the drafting was finalized.

Pay the Penalty: While it is not the way we want to do business, the worst 
case scenario under the proposed escrow agreement is to forfeit  $25 million 
if we elected not to follow through in an Enron  buy scenario.   Considering 
the upside to the buy/sell under either sequence (Enron first or RIL first) 
it may be worth the risk of losing the escrow under a black Friday scenario.  
I want to think about this over the weekend, but while I was thinking this 
afternoon the risk reward seems to be very favorable.  

Contact someone at Janus Fund:  This was suggested yesterday and I would 
strongly urge you to do this if you feel comfortable making the inquiry.  
Janus bought approximately a  5% position in RIL about 1-2 months ago.  I 
think you will get a very positive report on both the cash front and their 
desire to make the upstream a key part of the company.

Thoughts on Non- Reliance Bidders:  I have spent a lot more time thinking 
about this issue.   I can talk you through the reasons, but as long as 
Reliance is involved and a western company can only purchase a 30% 
non-operated working interest, we will have to take a huge discount to fair 
value.  I will be very surprised if we could get $450 million.  Again, going 
to the Shell's, BG's,,,etc  early on in the process,  I believe, is a huge 
mistake, both internally and externally.

Information Flow and Process:  Ken this is a very sensitive area but I feel 
compelled to mention this to you.  I am concerned about too many people 
knowing our plan and strategy and possibly others wanting to branch out with 
the intentions of helping, but actually causing problems.  This needs to be 
managed by one person, not three or four.  To meet all of our objectives this 
has to be an orchestrated deal from a to z.  I think you know more about my 
background then most others in Enron.  I worked the E&P M&A business for 10 
years and did pretty well at it.  I know the oil business and I believe that 
is a key to getting a good deal done.  I know these assets and all of the 
complex issues surrounding the assets, our subsidiaries, tax issues and the 
book considerations.  I'm the best person to get this deal done once you 
decide the risk the company is willing to take.  I know the limits of my 
authority and I will work within those bounds and keep the OOC completely and 
totally informed so proper decisions can be made when necessary. 

Ken, I promise you I will use others in the company where and when 
appropriate.  If I need help in India, I would not hesitate to ask Sanjay for 
such.  However, the last thing we can afford is excess discussion in India on 
this deal.  If Dhirubhai agrees to the deal, we need to get a meeting set in 
Europe at a neutral site to start the process.  My main objective is to  have 
a successful deal.  

I have decided not to go to India so we can concentrate on moving this 
forward.  Also, I will need your guidance on the future of the E&P plans for 
Enron when we decide the direction we plan to take on Panna, Mukta and 
Tapti.  I have looked at the key people necessary to make this happen and can 
talk to you about that as well if you so desire.

Thanks
jeff