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Enron Mail |
Rick,
It would be difficult to use option approach to directly to ships (no historical price series and no regular, continuos markets). The right approach is th real options model that requiresa lot of time to develop. From: Rick Buy 05/22/2000 01:35 PM To: Vince J Kaminski/HOU/ECT@ECT, Ted Murphy/HOU/ECT@ECT, David Gorte/HOU/ECT@ECT, Vladimir Gorny/HOU/ECT@ECT cc: Subject: Exmar Purchase Decision fyi ---------------------- Forwarded by Rick Buy/HOU/ECT on 05/22/2000 01:34 PM --------------------------- John Sherriff 05/22/2000 01:21 PM To: Rick Buy/HOU/ECT@ECT, Joe Gold/LON/ECT@ECT, David Haug/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Doug Rotenberg/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Rick Bergsieker/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Vince J Kaminski/HOU/ECT@ECT cc: Subject: Exmar Purchase Decision I just got off the phone with Jeff Skilling to make my pitch for doing the Exmar deal. He said that he generally understands the logic of the deal but simply wants the risk management discipine applied to analzing the position (a reiteration of what Rick Buy had said in our meeting today). I would simply ask Vince's team to take a quick look tommorow at valuing the ships as stand alone positions with a guess at the volatility based on historical price movements. This would be much easier than the Rainbow option approach and would allow us to roughly look at the value of the options on the other two ships. In other words we could look at two ship long positions with some implied volatilities and also estimate daily VARs on the ships as if they were mark to market (although I agree with David that we will not likely be able to mark the ships because they will be treated as leases). John John ---------------------- Forwarded by John Sherriff/LON/ECT on 22/05/2000 19:05 --------------------------- Joe Gold 22/05/2000 18:58 To: John Sherriff/LON/ECT@ECT cc: Subject: Exmar Purchase Decision John, After spending a few minutes with our shipping experts in the coal and oil groups, I have a slightly different angle on the Exmar LNG vessel decision. I would ideally like to spend the time to analyse this purchase as we do power and gas positions. Unfortunately, we do not have that luxury and sometimes, in absence of true analytics, the most rudimentary measures can provide the best decision tools. Here is how we would make the decision: 1) Our shipping expert confirms that $140 million for a 135,000 ton ship represents a good price relative to new build costs over the last three years and that quotes have been trending up past that number recently. He also confirms that the current trough is the result of the default of several Far East buyers and that new LNG orders and other ship building (cruise liners) have reduced the over capacity. His experience and historic analysis has suggested that the pricing cycle for LNG ships lasts for a significant period. New efficiency measures should reduce new build prices (and allow for a lower trough), but not by an extreme amount versus the $140 million cost of this vessel. Pierre normally likes to roll time charters; however, this is difficult in an illiquid shipping market like LNG. He would purchase this ship if the LNG shipping book were his to manage. He estimates the ship could be sold in a distressed sale for $110 million and could be potentially time chartered on a long term basis at a value of up to $200 million. 2) Our development teams in Spain, Italy and Turkey have been trying to solve the big question - gas. In each country, the key to developing a merchant plant is securing gas flexibility or at least securing negotiating leverage with the monopoly gas supplier. It is questionable whether or not this decision will have an immediate impact on Arcos. The plant's time line and the realities of the LNG supply market may require that we commit to Gas Natural before any source of 3 to 5 year gas can be secured. The shear threat of being able to bring spot or term LNG to these markets will improve our negotiating leverage and/or allow us to create flexibility. Going forward, however, other potential plant opportunities in Spain, and elsewhere in the Med region, may have the capacity to utilise these vessels. I think that this flexibility is worth at least $25 million to me. 3) I would summarise: Upside $60 + $25 = $85 million Downside ($30) + $25 = ($5) million I would do it. I will leave the rest to you. Joe
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