Message-ID: <23482769.1075843952192.JavaMail.evans@thyme>
Date: Tue, 5 Jun 2001 15:51:00 -0700 (PDT)
From: james.lewis@enron.com
To: john.nowlan@enron.com, larry.lawyer@enron.com
Subject: GTL - Next Steps
Cc: mike.mcconnell@enron.com, jeffrey.shankman@enron.com, 
	scott.earnest@enron.com, johnna.kokenge@enron.com, 
	michael.robison@enron.com, rahul.kumar@enron.com
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John and Larry,

Based on the latest information, EGM wants to be able to mark-to-market $20 
million on the GTL contract this quarter. To do so, we need GTL to sign and 
get final approval of a contract that does not have any contingencies or 
conditions precedent to its effectiveness. I will call Kevin Alexander to 
explain what EGM expects to have in place by the end of this month, and if 
necessary, I will go to London to work through the specific language. Based 
on the latest e-mail from Kevin, he thinks that the project must achieve 
financial close by June 30. This is not necessary and is obviously impossible.

In general, I will stick as closely as possible to the terms of the Marketing 
Agreement already signed and remove any project related contingencies. If EGM 
has the exclusive right to market GTL's methanol, then we should be able to 
mark some income. Then the discussions will focus on how much to reserve. If 
necessary, I will bring up a fixed offtake price for up to 300,000 metric 
tons per year, but I do not think it will be necessary. A prepay is 
definitely off the table. John, I believe that your preference is not to take 
any fixed price risk, rather to collect a fee for marketing methanol. This 
will be easier to get approved. Any contract with a fixed price will require 
sign-off from Bjorn.

After getting the proper contract to satisfy this month's needs for income, 
we will have to work hard to make the underlying project in Darwin feasible 
to avoid having to reverse the M-T-M income later. This will, at a minimum, 
require forcing Phillips to agree to a floating gas feedstock price and a 
settlement of the East Timor dispute with Australia for the gas. Note that 
this issue is a wild card and could kill the deal at any time.

Here are the very, rough numbers for what we can mark-to-market assuming a 
3.5% marketing fee, ten year contract starting in 2005, 1million tons per 
year, various average delivered methanol prices per ton, $500k per year of 
admin expenses to market methanol, a 20% credit reserve and no other reserves:
 Price   MTM Earnings

 $130   $18 million
  150     22 million
  170     25 million

Unless I hear otherwise, I will proceed with getting GTL to sign and get 
approved by its board a MTM contract by the end of this month.

Jim