Cross Timbers Energy Services, Inc.

FYI
---------------------- Forwarded by Tana Jones/HOU/ECT on 01/20/2000 09:01 AM
---------------------------

Enron North America Corp.

From: John Suttle 01/20/2000 08:54 AM

To: William S Bradford/HOU/ECT@ECT, Rod Nelson/HOU/ECT@ECT, Charles H
Otto/HOU/ECT@ECT, Carol St Clair/HOU/ECT@ECT, Sara Shackleton/HOU/ECT@ECT,
Marie Heard/HOU/ECT@ECT, Tana Jones/HOU/ECT@ECT, Susan Bailey/HOU/ECT@ECT,
Susan Flynn/HOU/ECT@ECT, Russell Diamond/HOU/ECT@ECT
cc:
Subject: Cross Timbers Energy Services, Inc.

Cross Timbers Oil Company has requested that we consolidate our entire
trading relationship at the above referenced entity. They have also asked
that we consider a netting agreement for margining purposes that will allow
netting of not only financial and physical mark to market, but receivables
and payables with the combined mark to market. They have offered a parent
guaranty from Cross Timbers Oil Company to cover existing exposure with a
built-in cushion to cover future transactions.

As I see it, there are several credit and legal issues within their request.
First, is credit comfortable wearing the aggregate amount of exposure, and
does an enormous guaranty from a BB- company get us there? If so, is legal
comfortable with the concept (as in Torch Energy Marketing's case) of an
overall netting agreement across products, receivables, payables, and mark to
market? Finally, are we comfortable transacting with the entity that has no
assets, but rather is simply backed by a guaranty.

If we do figure out that we can accommodate their request, we will need to
assign the master agreements and all transactions under the agreements from
Cross Timbers Oil Company to Cross Timbers Energy Services, Inc. We will
also need to amend the outstanding guaranty, extend its tenure and increase
its amount.

I will address the credit issues within our group, and I think we should try
to schedule a meeting between legal and credit to discuss whether or not the
netting agreement requested is possible. I will make a call up to legal
later this morning to compare schedules and try to set up a time to meet.
Meanwhile, please call me with any questions, concerns or suggestions.

Regards,

John