EGEP & EOGIL Cash Needs

Mark, Thanks for your voice mails yesterday regarding the cash needs of ou=
r two organizations, EGEP and EOGIL. Based on your messages I am a little =
confused and if I need to talk with someone else to actually move cash to E=
GEP and or EOGIL in the near-term I need to know the process to follow and =
whom to talk with. Here is a synopsis of our situation.

The cash generating company that EGEP manages is EOGIL (our Indian E&P sub)=
. EOGIL generates about $5 to 6 Million dollars of before tax free cash fl=
ow each month (depending on oil prices and variable operating expenses) tha=
t is deposited into a New York EOGIL account and immediately swept to an En=
ron Corp. account (currently EDF). Therefore, this sub is self sufficient =
and should be able to handle all planned 2002 extra-ordinary capital or ope=
rating expenses. The only near-term issue is our estimated tax payment tha=
t is due 12-15-01 of 6.4 MM$ for the 4th quarter of 2001. Since all of ou=
r money is immediately swept to EDF, we do not have these funds on hand and=
we will not receive enough cash prior to the 15th to make this payment. T=
herefore, if we want to be self sufficient, a) we need to retain any new fu=
nds in our EOGIL account and, b) any deficit can be borrowed from EGEP (ass=
uming it is funded as described below) and repaid to EGEP from 2002 cashflo=
ws.

EGEP is the Houston based technical arm and management for EOGIL. We have =
40 people that work directly on the EOGIL assets (we had over 100 people la=
st year and have cut staff to current levels as we sold assets) and these p=
eople are currently pledged to British Gas for a 60 day transition period i=
f and when we close the sale of EOGIL to BG. All of these people will be s=
evered after the transition period and they all know this is their fate (th=
ey have known this since October 2000). The reason they are still here is =
for two reasons; 1) Divestiture agreements and 2) Severance payments. If w=
e can not guarantee pay-roll, severance and divestiture we will lose people=
immediately. Most of the staff can walk to EOGR at any time and without s=
ome comfort regarding severance and divestiture, I know they will leave whi=
ch puts us in jeopardy for a) maintaining our operations and operatorship, =
b) being able to fulfill our contractual commitment to BG, or c) losing the=
talent necessary to re-market if we can't close the BG deal. =20

Operatorship is a very valuable commodity and retaining it for re-sale is w=
orth $50-75 million even if we elect to sell to an Indian company. In orde=
r to retain operatorship it is vital that we retain the current staff.

I realize this may seem trivial in the larger scope of things, but in light=
of the reasons we are looking into this matter of keeping our cash generat=
ing subs operational, having money for these items will be essential. EGEP=
's monthly G&A is approximately 1.8 MM$ per month. Enron's obligations to =
the employees in the form of severance and divestiture is approximately $10=
million. Therefore, I would recommend that we deposit $15mm into the EGEP=
account to cover known commitments and we will bill future months of EGEP =
G&A either to EOGIL or BG, whichever is appropriate. Furthermore, EOGIL ca=
n use the $15 million to draw against if we need any near-term funding befo=
re we build any cash reserves.

I hope this helps clarify our situation. I am available to discuss this is=
sue at your convenience and can be reached at 3-5934 or my cell 713-569-471=
3. Let me know if I need to talk to others in the organization.

Thanks
jeff