Message-ID: <8695663.1075842598550.JavaMail.evans@thyme>
Date: Wed, 28 Jun 2000 10:05:00 -0700 (PDT)
From: gerald.nemec@enron.com
To: dan.bump@enron.com
Subject: Wildhorse Gathering Agreement
Cc: ward.polzin@enron.com, teresa.bushman@enron.com, barbara.gray@enron.com
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Dan,  I have reviewed the Wildhorse (Mesa) Gathering, Processing, and 
Transport Agreement.  This agreement is still valid and the gas is dedicated 
to this Agreement through 2013.  The agreement present some problematic 
issues which I will outline.

 1. Gas Quality -  The gas quality provisions only require Wildhorse to 
transport the gas if the gas meets the downstream carriers (in this case 
Northwest Pipeline) gas quality specifications.  We propose to put in a 
treating plant which would allow the gas to meet the specifications, however 
there are no provision in this Agreement which allow us to insert a plant 
between Northwest Pipeline and Wildhorse.  Wildhorse could delay are extract 
value from us for this connection.  This is an uncertainty.

 2.  Wildhorse Obligation to Perform - Based on my understanding of the 
facts, at some point during the term of this agreement, Northwest Pipeline 
enforced their gas quality specifications and refused to take the gas at the 
downstream side of Wildhorse's Gathering System. As a result, Wildhorse shut 
in Enogex's production and it has been shut in ever since.  Wildhorse has a 
right to do this under this Agreement (see #1 above) and therefore Wildhorse 
has not breached its obligation to transport under this Agreement.  
Wildhorse's obligation was suspended when Northwest refused receipt of the 
gas.

 3.  Unprofitability - Assuming Wildhorse worked with us to install the 
treating plant which conformed the gas to Northwest Specifications, they 
could refuse to provide gathering service under this agreement if it was 
still uneconomical for them to do so.  If they decided it is uneconomical for 
them to do so, they have the right to provide Enogex with various potential 
solutions which include (i) renegotiating the terms (ii) allowing Enogex to 
operate Wildhorse's equipment at Enogex sole cost, expense and risk, or (iii) 
release the gas from the Agreement.  The problem here is that there is no 
time limit under which Wildhorse must reach a solution with us and no 
specific solution they must reach.   Wildhorse could drag this out for some 
extended period of time and they could extract significant value.


My  recommendation is that we make Enogex's resolution of these issues with 
Wildhorse a condition precedent to closing and funding this deal. I know the 
timing is late.  However if Enron funds this deal and takes on the risk of 
negotiating with Wildhorse to resolve either a new deal or a release of the 
gas,  everyone needs to understand that such negotiation could take 
substantial time and Wildhorse will have significant leverage.   

Let me know if you wish to discuss this further or have any questions.