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Enron Mail |
i guess this is the answer to my inquiry on cypress issue-rick
---------------------- Forwarded by Rick Buy/HOU/ECT on 11/29/2000 08:22 AM --------------------------- From: Travis McCullough on 11/28/2000 09:59 AM To: Mark E Haedicke/HOU/ECT@ECT, Rick Buy/HOU/ECT@ECT cc: Subject: Cypress Exploration Program--Operator/Cash Call Issue Mark and Rick: Attached is an e-mail from Teresa Bushman passing on what she has learned about the circumstances surrounding the operator/cash call issue. Let me know if there is anything I can do to follow up on this matter. Travis McCullough Enron North America Corp. 1400 Smith Street EB 3817 Houston Texas 77002 Phone: (713) 853-1575 Fax: (713) 646-3490 ----- Forwarded by Travis McCullough/HOU/ECT on 11/28/2000 09:57 AM ----- Teresa G Bushman 11/27/2000 02:30 PM To: Travis McCullough/HOU/ECT@ECT cc: Subject: Cypress Exploration Program--Operator/Cash Call Issue Travis: This is the response I sent to Mark a couple of weeks ago after I first heard of this matter. I have since learned that they expect the cost overrun to be between $500-600,000 or $320-350,000 net to our interest. Kelley has promised orally to pay their joint interest billings promptly, and the billings are being generated every two weeks. Two have gone out; one of which for $403,000 has already been paid by Kelley. Please let me know if there is anything further you'd like for me to do. Teresa Teresa G. Bushman Enron North America Corp. 1400 Smith Street, EB 3835A Houston, TX 77002 (713) 853-7895 fax (713) 646-3393 teresa.g.bushman@enron.com ----- Forwarded by Teresa G Bushman/HOU/ECT on 11/27/2000 01:58 PM ----- Teresa G Bushman 11/12/2000 05:00 PM To: Mark E Haedicke/HOU/ECT@ECT cc: Lance Schuler-Legal/HOU/ECT@ECT Subject: Cypress Exploration Program--Operator/Cash Call Issue Mark: I spoke briefly to Steve Pruett this past week regarding the Cypress JOA cash call issue that you had inquired about. As I mentioned in my voicemail to you, I was not aware of the farmout arrangement or JOA with Kelley and had not been asked to review the farmout agreement or the JOA. I obtained copies of the documents and asked Steve to fill me in on how the situation developed. Steve was out of the office much of last week; he followed up Friday with the attached email message. As Steve mentions in his email, there were extenuating circumstances and timing issues, but certainly it was a mistake for a rig to be moved and a well spudded without agreements in place and for documents to be signed without appropriate review and approval. I understand that John Thompson and Steve made the decision to move the rig and spud the well when they had a term sheet and draft agreement that they anticipated being able to sign in short order. Allen Wilhite and I frequently work together to get documentation finalized and in form for Steve's execution. From Steve's reaction when I told him I had not reviewed or initialled the farmout (which had been initialled by Allen), I believe he had assumed that had been the case in this situation as well, although he did not try to place responsibility on Allen. Steve is one of the best and the brightest I've worked with at Enron. He is extremely busy, working very hard to manage the portfolio of existing E & P assets, as well as working on new deals. I have worked with Steve enough to know that he would never have intentionally failed to follow our procedures. I think this incident was a mistake that will not be repeated. I will remind the ECR group at Monday's staff meeting that review by the legal department is required before any agreements are signed. Where do we go from here? Would you like for me to arrange a meeting with Steve? Please let me know if there is anything further you would like for me to do. Steve raises the issue of staffing in his email. In light of the level of activity for new ECR deals, time that is required in assisting Global Finance with Condor and a funding vehicle for the VPPs, and the increased legal time required as Bonne Terre, Cypress, and Vastar are no longer managed by third parties, being able to provide quality and timely legal advice is increasingly difficult, and staffing is an issue that I hope can be addressed soon. Teresa Teresa G. Bushman Enron North America Corp. 1400 Smith Street, EB 3835A Houston, TX 77002 (713) 853-7895 fax (713) 646-3393 teresa.g.bushman@enron.com ----- Forwarded by Teresa G Bushman/HOU/ECT on 11/10/2000 06:04 PM ----- Steve Pruett@ENRON 11/09/2000 07:18 PM To: teresa.g.bushman@enron.com cc: Subject: Kelly Farmout Agreement - Cypress Venture Teresa: Thank you for approaching me directly about the issue of my failure to obtain legal review of the subject farmout agreement in Enron Energy Capital Resources' (ECR) Cypress Venture. The circumstances of the event follow to the best of my knowledge, without confirming with Allen Wilhite who is presently inaccessible: Rozel Energy, led by Bill Rogers, identified a high potential / relatively low risk prospect in late August on acreage held by Kelley Oil & Gas (sub of Contour Energy). He commissioned a lease check and found that Kelley controlled 90%+ of the acreage, but it was set to expire on Sept. 28, 2000. Rozel, after reviewing the prospect with ECR technical personnel and receiving approval to do so, sought to acquire top leases over the prospect only to find that others had already top-leased a significant portion of the prospect. Had the Kelley lease expired, these parties would have controlled and drilled the prospect. Rozel, with the help of Allen Wilhite, approached Kelley for a farmout. Kelley asked to be presented with a prospect review under the concept that Kelley would be willing to farmout approximately 50% of its interest, or farmout all of its interest retaining an ORRI convertible to a WI APO or higher ORRI at its option. Kelley elected to participate for 50% of its interest in the well before the farmout agreement was drafted. Kelley agreed to general terms in a brief letter agreement. Kelley sought to operate the well, which ECR rejected due to Kelley's poor track record in drilling deep S. Louisiana wells. Rozel Energy is the operator in absence of Enron having an operating vehicle. Rozel employed a seasoned contract operator in S. Louisiana, Stokes and Speiler, who are being managed daily by Arvel Martin and Bob Devine, who each have over 25 years experience in mangement of drilling operations. Inasmuch as the operation of the well was in dispute, the negotiation of the JOA and the farmout agreement was strained and Kelley was non-responsive to Allen's efforts to finalize the agreement. Allen, Craig Fox, Arvel Martin and I met with Kelley's Land Manager and VP of Operations and established a dialogue and rapport (we thought). The initial draft of the farmout agreement was put together on Sept. 15th by Kelley and Allen. Allen did not share the draft with you then as we were still apart on certain deal provisions, particularly who would operate. ECR members were in dispute over the importance of operations. With Kelley's consent and our high level of confidence that we would reach terms with Kelley, we moved our rig in and spudded the well a few days prior to the Sept. 28th lease expiration. Allen and I continued to be frustrated with not reaching final contract terms with Kelley after the well was spudded. I pressed Allen to finalize an agreement and he presented an agreement signed by Kelley on October 16, 2000 (effective Sept. 15, 2000). Following my signature and upon his departure to Kelley's offices to deliver the document, I asked him if you had reviewed JOA and he said no. I asked him if it was required or customary for Legal to review JOAs, and he said it was sometimes done but there are rarely revisions. I did not ask specifically about farmout agreements. The Kelley farmout was the first farmout in a directly-owned asset that I had encountered. I failed to recognize the distinction between numerous farmouts that I had seen executed by our GP's in our Juniper, Bonne Terre (historically) and Texland ventures, and a farmout with Enron's name on the line. It is my job as a Vice President to know what requires Legal review. I have been made aware that farmout agreements and JOA's in directly owned assets (as opposed to LP's with a GP such as Juniper) require Legal review and signoff. The compliance meeting last week underscored that point. We had outside counsel (Lisa Jaubert) under your direction review the Tri-C and Manti farmout agreements and your initials are evidence of your approval. I respect you as an attorney and business partner and commit that I will be diligent about obtaining your review of agreements and ask you when in doubt as to whether legal review and approval is required on a particular item or issue. The demands that our large oil & gas exploration portfolio places on you is another issue that we should discuss. The Bonne Terre, Cypress and Vastar ventures have significant drilling activity that has commenced and will continue. Dissolution of Bonne Terre and distribution of the assets to ENA (to be held in BT Exploration LLC) will increase the legal and commercial activity level. We have another prospect in Cypress that is being promoted and will be spudded in the next 10 days, so expect to see a farmout agreement on the S. Riceville prospect late next week. I would be pleased to discuss these matters with you and Mark Haedicke in person if you desire. I regret my failure to obtain your review and approval of the Kelley farmout agreement and commit to preventing a repeat of the mistake. I am concerned about the pace of agreements that we face in the immediate future on our direct-owned ventures. I look forward to working with you on ways to better manage our business process in Cypress-Acadian, Bonne Terre & Vastar ventures.
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