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Enron Mail |
John and Larry,
Based on the latest information, EGM wants to be able to mark-to-market $20 million on the GTL contract this quarter. To do so, we need GTL to sign and get final approval of a contract that does not have any contingencies or conditions precedent to its effectiveness. I will call Kevin Alexander to explain what EGM expects to have in place by the end of this month, and if necessary, I will go to London to work through the specific language. Based on the latest e-mail from Kevin, he thinks that the project must achieve financial close by June 30. This is not necessary and is obviously impossible. In general, I will stick as closely as possible to the terms of the Marketing Agreement already signed and remove any project related contingencies. If EGM has the exclusive right to market GTL's methanol, then we should be able to mark some income. Then the discussions will focus on how much to reserve. If necessary, I will bring up a fixed offtake price for up to 300,000 metric tons per year, but I do not think it will be necessary. A prepay is definitely off the table. John, I believe that your preference is not to take any fixed price risk, rather to collect a fee for marketing methanol. This will be easier to get approved. Any contract with a fixed price will require sign-off from Bjorn. After getting the proper contract to satisfy this month's needs for income, we will have to work hard to make the underlying project in Darwin feasible to avoid having to reverse the M-T-M income later. This will, at a minimum, require forcing Phillips to agree to a floating gas feedstock price and a settlement of the East Timor dispute with Australia for the gas. Note that this issue is a wild card and could kill the deal at any time. Here are the very, rough numbers for what we can mark-to-market assuming a 3.5% marketing fee, ten year contract starting in 2005, 1million tons per year, various average delivered methanol prices per ton, $500k per year of admin expenses to market methanol, a 20% credit reserve and no other reserves: Price MTM Earnings $130 $18 million 150 22 million 170 25 million Unless I hear otherwise, I will proceed with getting GTL to sign and get approved by its board a MTM contract by the end of this month. Jim
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