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Enron Mail |
Mark,
I am pleased to report that everyone has been working extremely hard to collect all of the information that has been requested (and then some) for purposes of the upcoming due diligence visit. I believe that Brian will find everything most interesting and exciting. While discussing the current situation with Awano and Seguchi we touched upon your initial reaction to our valuation and came upon a fundamental realization. Because we have as yet not shared any of the financial projections for Mutsu Ogawara or Ube with you it is not surprising that you would be unaware of how much value we truly believe we have in these projects. Recognizing that Enron will need to review and evaluate the assumptions we have utilized I still wanted to share some fundamental numbers with you in order to put this value into perspective. Taking the Mutsu Ogawara numbers alone and discounting them to a financial closing date at the end of 2003 (utilizing a 15% discount rate) results in a Net Present Value of US$848 million. In other words, if we were to flip this project at financial close it would be worth at least this much. Using a discount rate of 10%, still considered very high for a Japanese investment return and likely attractive to many Japanese investors, the value is in excess of US$1.5 billion. Looked at another way, discounting the NPV back to 2001 at 15% results in a current NPV of $558 million, or more than $34 per current EnCom share! Assess any reasonable probability factor -50% or 33% - and you still get $11 to $17 share. Our assumptions were developed conservatively and are quite defensible. As an example of our conservatism, we incorporated 300 MW of simple cycle combustion turbines into the Mutsu Ogawara Project capital costs to provide peaking or backup capacity and yet included zero revenues from this capacity. Therefore any value attributable to this additional 300 MW represents pure upside. This also includes zero upside from any marketing of natural gas into this gas deficient part of northern Japan. These numbers may be hard to believe but we are comfortable that your due diligence will bear them out. More exciting is the fact that the Ube economics are even better. Looking at just these two projects and placing a ridiculously low 20% probability of success on them together with the $3 per share of cash on our balance sheet gives you nearly $20 per share current value. This is without considering Oita or any of the other many projects we are currently working on. This is why I was surprised by your reaction to our valuation. If Enron, with all of its significant resources and experience, were to fully support EnCom on these two projects we believe that the probability of their success would be quite high. (We have been receiving excellent support from the Global LNG Group by the way) This is also why I would suggest that we focus our immediate attention on these two projects together with perhaps the Oita LNG Project. It will prevent your team from becoming stretched too thin and may accelerate your ability to come to a conclusion with respect to valuation. I think that we would agree that reaching a conclusion as quick as possible is in all shareholders interests. My main concern continues to be that the current infighting between Enron Japan and E Power has limited Enron's ability to recognize 1) the quality and significant capabilities of the employees of E Power and 2) the significant value that has been created through the nearly 2 years of systematic and comparative analysis of all of the potential greenfield sites in Japan as well as the significant progress with respect to brownfield developments. I am hopeful that your due diligence team will quickly come to understand this. Within the next six months we expect to be able to take off of the market nearly three quarters of the most attractive development sites in Japan leaving little for the late comers to the Japanese market. We continue to hope that together we can find a way to focus our mutual energies on building value in this exciting market rather than on non-productive bickering and turf wars. Sincerely, Bruce Wrobel
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