Subject: Re: Upstream Energy Services Cio, L.L.C.
From: [email-masked]
To: [email-masked], [email-masked]
Cc: [email-masked]
Date: Wed, 16 May 2001 10:12:00 -0700 (PDT)

Brian Riley contacted me regarding the subject company and the fact that HPL 
had overpaid them to the tune of $328,508.61and would it be appropriate for 
HPL to withhold that amount from the next payment being sent to Upstream.  
The documentation that has been provided to me shows that this amount relates 
to overpayments made in 1997 and early 1998.  The 1997 payments were made 
pursuant to a spot contract and that they had confirmed a nomination of 500 a 
day however, Killam Oil Company, the operator of the wells, has made a 
reallocation of volumes from these wells from the parties that Upstream 
represents to Enron Oil and Gas Company.  The information provided does not 
indicate when Killam made the reallocation.  Based on the reallocation, HPL 
or its predecessor has paid Upstream for 97,384 MMBtu that has now been 
allocated to EOG.  I am told that Upstream has not denied its responsibility 
for repaying the money, only that it needed time to collect the money from 
the parties that it represents.  Upstream's attorney, Ty Kelly written 
correspondence indicates that the Spot contract was not complete because it 
did not provide a document evidencing the delivery point and volumes.  That 
contract provides that the remittance advice serves as the confirmation 
evidencing the transaction.  He also stated that the volumes should have been 
sold to HPL under the Big Cowboy agreement which they did not have a copy 
of.  Brian Riley has indicated that the purchase price was the same under the 
Big Cowboy and the Spot contract.  Kelly also indicated that since HPL's 
agreements routinely provide for arbitration, the issue should be resolved 
through arbitration.

Based on my review of the information available, HPL should withhold the sum 
of $328,508.61 from the next payment to be made to Upstream and hold such sum 
in suspense until the issue is resolved.  HPL needs to be aware that in the 
event it is not able to prevail on its claim for such sum, it will need to 
remit such amount together with interest to Upstream.