Message-ID: <29408838.1075854440578.JavaMail.evans@thyme> Date: Thu, 13 Jul 2000 13:09:00 -0700 (PDT) From: david.delainey@enron.com To: jeffrey.sherrick@enron.com Subject: C-Gas Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: David W Delainey X-To: Jeffrey Sherrick X-cc: X-bcc: X-Folder: \David_Delainey_Dec2000\Notes Folders\All documents X-Origin: Delainey-D X-FileName: ddelain.nsf Jeff, I don't believe the offer I showed you of $39 M is unreasonable. In fact the team had recommended $42 M based on a number of measures. I see the 6X multiple of annualized Q2 earnings as one of the best measures of the potential value of this company. I don't see it in the best interests of Enron to be transferring assets below a reasonable market value between business units. You can trust that I will be keeping the Energy Capital Resources team's feet to the fire on the realization of this value if you do not purchase the company. If you and Steve can come up with a better indication of value, I will support that transaction. Regards Delainey ---------------------- Forwarded by David W Delainey/HOU/ECT on 07/13/2000 07:29 PM --------------------------- Jeffrey Sherrick@ENRON 07/13/2000 07:17 PM To: David W Delainey/HOU/ECT@ECT cc: Subject: C-Gas Dave, I have ask Steve Harper, Jack Harmuth, Howard Selzer,and Glenn Fox to work with Steve Pruitt and see if the number you offered can be supported. The value for proved developed reserves and the financial/legal issues can be reviewed rather painlessly here in Houston. The value for the proved undeveloped reserves will most likely require a visit to the working team to see the program particulars, verify the acreage and , concluded the validity of this estimate of PUD value. The idea of paying before tax NPV10% for an assumed 3.5 year program on top of the PD &PUD reserves will require a more indepth review. Obviously, we want to do this as simply as possible and I was prepared to take the package "as is, where is" at book value which I understood to be in the 30-32MM$ range including debt. Dave I understand what you are doing and I would support this effort if we were selling the asset outside of the company. I want to do what is best for Enron at this time which I believe is to transfer this asset to EGEP for the reasons i outlined in my prior memo. It will benefit C-gas via direct access to technology and specialists, it will benefit EGEP for marketing and a US presence and it will benefit ENA by moving the asset from your books without a loss and releasing the valuable intellectual capital ENA could employ elsewhere in a higher yielding business venture. However, with the premiums you have placed on the properties it is going to be very difficult to make this transaction happen. (However, we are willing to try) ENA has had this on the market for over a year with the intent to sell it at book if possible. Prices have improved, but I believe even your team would admit this is still a project to get book in the market today. Your estimated value at the current strip at a Before Tax 10% discount for Appalachian reserves seems a little aggressive for the market let alone an inter-company transfer. When we talked about this a couple of weeks ago we said it would be a fair transaction and at the time you were hedging that it would be around book. I understood your logic for needing to talk with your team but I was relying on a fair deal to result. Dave, I'm only sending this memo to you because I feel this is being pushed way past fair by your team with the intent that if we pay this it is a home run for your new team and since we are in a bind, let's see what happens. I know this is a very small piece of business for you and the time it takes to read this is more than you can afford to this asset or transaction. If fact, the easy thing for you to do is get mad and say you don't have the time and stop the transaction. On the other hand, if you believe the right thing for all parties is to do this at book, say so and you'll never deal with this piece of business again. I hope in this case you will put the greater good of Enron in front of ENA's desire to hit a home run at EGEP's expense and in the spirit of ONE-ENRON move these assets to EGEP at book value. As I said in the beginning we will try to get to your number, but I am concerned that we will spend a lot of time and require effort from all of the teams that could be eliminated if you and I decided to make this transaction at book. In fact, it would be the easiest transition for the C-Gas team which you've indicated to be a concern for your team. I am available through voice mail and I can get my lotus notes most days. Best thing is to leave a voice mail and a good time for me to call you back. Thanks Dave for your time, Jeff