Re: Swap Agreement

FYI - please put entry in Lotus Notes. ss
---------------------- Forwarded by Sara Shackleton/HOU/ECT on 07/23/99 02:16
PM ---------------------------

Enron Capital & Trade Resources Corp.

From: "John Novak" <John_Novak@ei.enron.com<
07/23/99 12:05 AM

To: "Lefler, Dean" <dlefler@velaw.com<
cc: dblack@ei.enron.com, "Kent Castleman" <Kent_Castleman@ei.enron.com<,
"Stephen H Friedlander" <Stephen_H_Friedlander@ei.enron.com<, "Beth Rosen"
<Beth_Rosen@ei.enron.com<, Sara Shackleton/HOU/ECT, "Barquin, John"
<jbarquin@velaw.com<, "Nasim H Khan" <Nasim_H_Khan@ei.enron.com<
Subject: Re: Swap Agreement

We have decided NOT to proceed with the swap agreement. Enron and Shell will
each write a guaranty in favor of TBS for their pro rata share of the negative
difference between the gas price received and gas price paid resulting from
the
differential in the gas price escalators. Any positive difference in TBS's
favor will run through the TBS accounts to the TBS distribution account and,
subject to the blocking test in the Accts and Disbursement Agmt, will then be
distributed to E & S.
Dean & John: Can you propose a draft guaranty for internal review? Once we're
happy with it we can send it to Shell for their consideration/sign-off.
Thanks.

Regards,
John

"Lefler, Dean" <dlefler@velaw.com< on 07/21/99 09:22:59 AM

To: Don Black/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Kent
Castleman/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Stephen H
Friedlander/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, "Nasim Khan (Business
Fax)" <"IMCEAFAX-Nasim+20Khan+40+2B1+20+28713+29+20646-6190"@velaw.com<,
Beth Rosen/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, "'Shackleton, Sara'"
<sshackl@ect.enron.com<, John Novak/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT,
"Barquin, John" <jbarquin@velaw.com<
cc:

Subject: Swap Agreement

I am sending this e-mail message to address several issues related to the
swap and to circulate a proposed confirmation for your consideration.

Before addressing the swap, however, I should note that it is not clear to
me that the project team has finally decided to proceed with a swap rather
than a guaranty. If we are not, I would appreciate someone letting me know
so that we can stop this process.

Comments on the Draft Schedule:

1. Part 1(a) "Specified Entity": A Specified Entity is an entity
other than the parties whose actions can cause an event of default or a
termination event. The draft schedule does not contemplate a Specified
Entity. I think we should consider whether EPE and/or SCG should be a
Specified Entity with respect to TBS.

2. Part 1(b) "Threshold Amount": proposes $1,000,000 for TBS, which
seems low given that Enron Corp. is backing it up.

3. Part 1(h) "Additional Event of Default": If we use a swap
arrangement, there will be two: one for 72.5% between TBS and ECT, and one
for 27.5% between TBS and a Shell entity. If that is the case, do we want
an additional event of default under which a sale by Shell of its interest
in TBS could result in termination?

4. Part 2 "Representations": I think that we need someone in tax
to determine whether TBS can make the representations.

5. Part 4(d) & (e) "Credit Support Provider": Shell will be the
credit support provider under the other swap arrangement, not this one.

6. Part 4(g) "Governing Law", 4(h) "Arbitration": The schedule
proposes Texas law with AAA arbitration to be held in Texas. It would seem
to me that we would want to use arbitration procedures that are similar to
those in the gas supply agreements, with ICC arbitration, held in Miami,
under New York, with joint arbitration if the same issue arises under one of
the gas supply arrangements (such as the proper calculation of price).

Comment on the Proposed Confirmation:

I have reproduced the gas supply pricing provisions from the EPE Gas
Supply Agreement under the "Fixed Amount Details" but have not done so under
the "Floating Amount Details", which cross-references the provisions of the
SCG Gas Supply Agreement, because of the length of those provisions.

Please let me know if you have any reactions to the above comments
or any comments on the attached confirmation. I will contact Nasim to
discuss the process for pushing the swaps (or, alternatively, guaranties) to
completion.

Regards, Dean

<<SWAPCON1.doc<<

- SWAPCON1.doc