Re: J-Block

Thanks for the quick response. I sent it on to John. Don't be surprised if
he calls you; you are the master of this deal.

Mike

Richard Harper
06/07/2000 09:30 AM
To: Mike McConnell/HOU/ECT@ECT
cc:
Subject: Re: J-Block

I have not been involved, but only last week a little bird told me that they
have severe problems with reserve levels and expect to decline in 2002, when
we were talking it was 2004 and then only by a small amount. Agip is
particularly adversely effected (as Agip in particular lacks reserves in the
area). I understand the development of Jade by BG and Phillips and the
squeeze down of Texaco and OMV, the other Jade owners, by Agip to sell their
gas to Agip was driven by this lack of reserves.

You will recall that liquidated damages was a big issue they wanted to retain
them rather than actual damages and we insisted that they remained at the
same absolute level as in the old agreement, so I believe they are 40% of the
new price (my memory is fading also). I do recall that they all insisted
that they would deliver the gas. However, as with most companies the players
have all moved on and a contract is a contract, afterall this was our
approach. Also I am sure they intended to maximise production from J-Block
and did not forsee a shortage of production.

It would be interesting to know if this is an agreed policy by them or
whether one of the sellers is blocking the NBP sale by refusing to
co-operate, they could do this because of the Common Stream Agreement.
Presumably they have not yet split the 3 agreements yet.

As to opportunity if they are short of reserves, perhaps they can buy
themselves out of the situation, especially while the contract is in the
money.

With my adversarial hat on perhaps BG want revenge for their loss in the
appeal courts? This is probably nearest to the truth.

I'm afraid this isn't much help and I do not recall any willful default
provisions in the agreement.

Richard

Mike McConnell
07/06/2000 14:49
To: Richard Harper/LON/ECT@ECT
cc:

Subject: J-Block

Richard,
Hello from South America. I am forwarding this email from John regarding
the J-Block problems. Have you been involved in this? What are your
thoughts? If you have any ideas or can provide with some help, please
follow-up. This is confidential but i thought you could help. When he
mentioned this, I really couldn't remember much. Amazing how the memory
fades on some of the details in just a few years.

Mike
---------------------- Forwarded by Mike McConnell/HOU/ECT on 06/07/2000
08:47 AM ---------------------------

John Sherriff
06/06/2000 12:09 PM
To: Jeff Skilling/Corp/Enron@ENRON
cc: Mike McConnell/HOU/ECT@ECT, Richard Lewis/LON/ECT@ECT, Peter
Crilly/LON/ECT@ECT
Subject: J-Block

I mentioned on our conference call on Monday that J-Block has had problems
meeting our nominations from the Judy/Joanne/Janice reservoirs.

Up until recent CATS maintenance shutdown on 15 May, they were making up for
reduced production volumes by nominating to supply gas at the NBP which they
are entitled but not obliged to do. Since return from outage at the end of
May they have declined to nominate at the NBP.

From 1 January to 15 May, the Sellers use of the NBP delivery option kept
underdeliveries to 350 mmcf (ie one day's maximum quantity) in total. Since
returning from the maintenance shutdown, underdeliveries have totalled 850
mmcf ( averaging 77mcf/d ).

We believe that following the sharp rise in market prices during the
maintenance period, they have decided to default on the contract rather than
make up deliveries from other sources. They have an effective cap on the
penalties of about 5 pence per therm (after taking into account the value of
the liquids) and therefore they are not making up the volumes when the daily
price is substantially higher than about 16 pence per therm.

Prior to the CATS shutdown, we had made them a proposal to enable them to
deliver additional volumes at another alternative to avoid default but they
have not responded yet.

You mentioned that in your negotiations with Phillips they had committed to
getting us all the gas regardless of the cap on the penalties. This has cost
us about $1.5 million to date and they seem to be institutionalising their
non performance. Perhaps a phone call by you might help.

By the way I will be in Houston on Thursday and Friday to meet with the
delegation from Croatia and I will probably be tied up the entire time but if
you need me
for a phone call I can break away.

John