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Enron Mail |
looks good to me.
Sean Boyle@ENRON 02/26/2001 05:36 PM To: Scott Neal/HOU/ECT@ECT cc: Subject: Guaranteeing Index Minus Gas Scott, I am talking to DTI (CNGT) regarding an Index minus sale for April-01 through June-01 of up to 4 Bcf. I wanted to send my contact a brief description of how we would go about achieving an Index minus baseload price by imbedding an option. I am not supposed to know about DTI's potential purchase requirements, so I changed the quantities and months in the example below, since the plan is to take this to her boss. Please let me know if this sounds OK or give me pointers on making it better. Tammi, As promised I wanted to send you a simplified example of how we can guarantee you IF-FOM Index Gas you can take to Michelle. Example: Note: All prices are notional non-transactable numbers. DTI requires a total of 610,000 DT in April and May as a 10,000 DT/d baseload purchase. ENA Proposal would guarantee DTI IF-FOM Index Minus Gas by embedding an option (Put or Call) into the deal for say 5,000 DT/d. Therefore if DTI has the flexibility to take up to 915,000 DT (in the case of the put) or as little as 305,000 DT (in the case of a call) then ENA can take the value of the option and imbed that into the price of the gas. Let us say; ENA is currently offered at IF - CNG App Index for April and May @ Index +2 cents, and agrees to sell DTI Index -2 cents; ENA has lost 4 cents or $0.04 * 610,000 = $24,400. However, if we price in the value of a call option with a strike price of the FOM Index, then that would generate $0.10 * 5,000 * 61 days= $30,500. ENA would use this value to offset the Index loss and make a small margin on the sale. Therefore DTI is guaranteed Index minus gas, however must have the flexibility to potentially take more or less gas than the baseload quantity. Remember, if the option is out of the money for the entire period, DTI will receive only the baseload quantity. If ENA exercises the option everyday then DTI will receive the quantities mentioned above still at a price of Index -2 cents. This can work if you need a quantity of gas over say four months we can imbed the option in three of the months and buy or sell the remainder in the fourth month at Index flat to achieve the desired quantity over the four month period. Obviously the more flexibility you give the more premium the option will generate and hence the greater the discount to Index we can guarantee. Please let me know if you have any questions. If you would like me to do a conference call with Michelle just let me know. Thanks, Sean
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