Swap Agreement

FYI. Let's talk later. SS
---------------------- Forwarded by Sara Shackleton/HOU/ECT on 07/21/99 08:43
AM ---------------------------

Enron Capital & Trade Resources Corp.

From: "Lefler, Dean" <dlefler@velaw.com< 07/21/99
12:22 AM

To: "'Black, Don'" <dblack@ei.enron.com<, "Castleman, Kent (Enron)"
<kcastle@ei.enron.com<, "Friedlander, Steve (Enron)" <sfriedl@ei.enron.com<,
"Nasim Khan (Business Fax)"
<"IMCEAFAX-Nasim+20Khan+40+2B1+20+28713+29+20646-6190"@velaw.com<, "Rosen,
Beth (Enron)" <brosen@ei.enron.com<, Sara Shackleton/HOU/ECT, "Novak, John
(Enron)" <jnovak@ei.enron.com<, "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