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Enron Mail |
Just a couple of comments on all the cc:mail traffic on the China LNG hedging
presentation: 1)We need to do a complete credit check on all possible Chinese risk management counterparties. 2)We need to do a complete legal check on whether the Chinese counterparties can enter into a derivative transaction. 3)We need to have full support of EI/ECT management to even quote a risk management structure and price due to the size of the transaction,term of the transaction, possible delayed start, basis risk between JCC/Brent/WTI and any other counterparty risks. 4)ECT is willing and able to provide a person(s) to do a presentation to the Chinese counterparties. A sample presentation document is currently being prepared for the China LNG team. Bottomline ECT is prepared to assist the Chinese LNG team so they can develop a competitive advantage in the region, but we cannot overlook the issues raised above. Please let me know how you want us to move forward on this subject. Regards, Doug From: "Geoff Roberts/ENRON_DEVELOPMENT" AT ENRON_DEVELOPMENT@CCMAIL on 11/23/98 09:22 PM To: Rick Bergsieker AT ENRON_DEVELOPMENT@CCMAIL cc: Doug Leach@ECT, Hugh S Urbantke@ECT, James A Hughes AT ENRON_DEVELOPMENT@CCMAIL, Michael L (Houston) Brown AT ENRON_DEVELOPMENT@CCMAIL, Heather J Mitchell AT ENRON_DEVELOPMENT@CCMAIL, William O Butler AT ENRON_DEVELOPMENT@CCMAIL, "Margarita G Jannasch/ENRON_DEVELOPMENT" AT ENRON_DEVELOPMENT@CCMAIL, "Kent Densley/ENRON_DEVELOPMENT" AT ENRON_DEVELOPMENT@CCMAIL, Soon Yeap AT ENRON_DEVELOPMENT@CCMAIL, David Haug AT ENRON_DEVELOPMENT@CCMAIL Subject: Re: PRC Derivatives Trading Rick, I would add that the commercial concept itself has to be determined up front (similar to Jim Hughes' position). When we originally talked, the concept was that we would be developing the entire chain (liquifaction - regas), which would provide a great deal more "volumetric capability" of fixed price since we would not need to convert fixed price components (the infrastructure) to a floating crude basket to begin with and all we'd really be having to hedge or swap out to a fixed component was the gas or commodity component itself. I recently found out that the latest structure assumed that we would be buying simply at the regas terminal and maybe having some participation in the regas. If this is a correct understanding, this is a BIG change in what can or can't be done since the floating portion to be hedged would be much larger. I also believe that at the time when this discussion took place, we assumed that we could take the basket to a real "tradeable" index, as opposed to the J crude cocktail or its equivalent. Unfortunately, the reality of the recent negotiations confirmed that this would be difficult if not potentially impossible from an existing supplier. This is also a big change from the assumptions of where we began. We also identified the counterparty credit risk at that point in time and I don't believe that any more work has been done in this area - which quite frankly will drive this deal to be workable or not. This has been and WILL be the biggest issue to find a solution for in any fixed price LNG sale. It all comes down to credit risk. I guess that I come down to having a similar concern as Jim Hughes. If we haven't fully defined what we want to do upstream of the customer, then the options that we can present to the customer will be more limited. No matter how you slice it, the volumes are big, so that what may appear to be minor changes will have a major impact on what we can and can't do. Jim and Bill's group is the right one to help work through these issues. I, and my team, remain ready to help out wherever possible. thanks, gdr Rick Bergsieker 11/23/98 05:36 PM To: James A Hughes/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Michael L Brown/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Heather J Mitchell/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Geoff Roberts/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Doug Leach@ENRON_DEVELOPMENT, Hugh S Urbantke@ENRON_DEVELOPMENT, William O Butler/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Margarita G Jannasch/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Kent Densley/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Soon Yeap/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, David Haug/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT Subject: Re: PRC Derivatives Trading (Document link not converted) Hugh: since your meetings have already been scheduled, perhaps you should go forward with your road show with a general repeat of the information you have already presented and then try one more time to get some corporate interest in putting together a risk management concept that makes sense. Jim: We need some help on this one. the idea of LNG price risk management for China was introduced in a general way many months ago by Hugh and Soon after much talk with ECT and Geoff's group. China is interested and has asked for more details. Hugh has tried his best, as you have suggested below, to get something more concrete structured. The problem is the same one we faced in the "value at risk" work done earlier this year for Dabhol/India LNG-----the concepts are interesting but they break down when one looks at the details because of the huge volumes. Hugh is caught in the middle on this because he continues to be told that "we should be able to do something" but he can't get his arms around anything more concrete. In the interim, China is asking for meetings and more details and we can't afford to tell them that we don't want to meet with them. We need to either put some hard thinking behind this and come up with something or we need to tell China that LNG tied to crude prices can't be hedged. Please advise Rick James A Hughes 11/23/98 07:43 AM (Embedded image moved to file: pic10634.pcx) To: Rick Bergsieker/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Michael L Brown/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Heather J Mitchell/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Geoff Roberts/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Doug Leach@ENRON_DEVELOPMENT, Hugh S Urbantke@ENRON_DEVELOPMENT, William O Butler/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Margarita G Jannasch/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Kent Densley/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Soon Yeap/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT Subject: Re: PRC Derivatives Trading (Document link not converted) Rick/Mike/Soon: I would suggest that we act very non-Enron like and slow down and make sure we get this right. We have had to reengineer our LNG efforts in India several times because we didn't have a broad consensus on what we were trying to accomplish from the beginning. I would suggest that we take the time now to carefully examine what we want to accomplish, the major issues and challenges we face and then identify the structure and products that best accomplishes our goals. We can then prepare a presentation to sell those products. We have seriously hurt our marketing efforts in India because we have had to restructure our approach to the market several times. Let's not make the same mistake. Jim Rick Bergsieker 11/22/98 02:15 PM To: Michael L Brown/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Heather J Mitchell/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Geoff Roberts/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Doug Leach@ENRON_DEVELOPMENT, Hugh S Urbantke@ENRON_DEVELOPMENT, James A Hughes/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, William O Butler/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Margarita G Jannasch/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Kent Densley/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Soon Yeap/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT Subject: Re: PRC Derivatives Trading (Document link not converted) Hugh/Soon: What do you want to do? (Embedded image moved to file: pic22412.pcx) Michael L Brown (Embedded image moved to file: pic26659.pcx) 11/20/98 12:00 PM To: Rick Bergsieker/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Heather J Mitchell/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Geoff Roberts/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Doug Leach@ENRON_DEVELOPMENT, Hugh S Urbantke@ENRON_DEVELOPMENT, James A Hughes/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, William O Butler/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Margarita G Jannasch/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Kent Densley/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT Subject: Re: PRC Derivatives Trading (Document link not converted) Rick, I believe the fundamental difficulty here is the proposed presentation(s) timing of 1st week in December as none of my group are able to be in Beijing during that week. Both Michel and Kent have other high priority commitments and I would also be happy to give this presentation, but can't be in China at or near the proposed dates. My suggestion is to first find out when an appropriate person is available and then schedule the meeting around that constraint. Another alternative, although less likely, would be to have the appropriate PRC persons come to Houston for presentations and we could also show them more of Enron and leave them with the intended very positive impression. Regards, Mike Rick Bergsieker 11/20/98 11:13 AM To: Heather J Mitchell/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Geoff Roberts/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Doug Leach@ENRON_DEVELOPMENT, Hugh S Urbantke@ENRON_DEVELOPMENT, James A Hughes/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, William O Butler/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Margarita G Jannasch/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Kent Densley/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Michael L Brown/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT Subject: Re: PRC Derivatives Trading (Document link not converted) Nobody in the LNG group understands this stuff This is a major line of business for ECT. Surely there is someone that can attend. rick Heather J Mitchell 11/20/98 10:11 AM To: Geoff Roberts/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Doug Leach@ENRON_DEVELOPMENT, Hugh S Urbantke@ENRON_DEVELOPMENT, James A Hughes/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Rick Bergsieker/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, William O Butler/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Margarita G Jannasch/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Kent Densley/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Michael L Brown/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Subject: PRC Derivatives Trading See Mark Taylor's comments below re: CNOC's inability to enter into derivatives contracts. Mark believes the only way CNOC could do anything would be through an off-shore affiliate. Hugh, is this an option? Also, since Michel is not available to make the presentation, and I have not heard from Kent, what is the back-up plan for a presenter? Would someone from the LNG group make the presentation? FYI, I have sent the draft to graphics for changes. Thanks, Heather ---------------------- Forwarded by Heather J Mitchell/ENRON_DEVELOPMENT on 11/20/98 10:02 AM --------------------------- From: Mark - ECT Legal Taylor@ECT on 11/20/98 09:37 AM To: Heather J Mitchell/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Subject: PRC Derivatives Trading Heather: Here is an excerpt from a message in which Anita Fam replies to my inquiry: Only 3 types of institutions have the capacity and authority to enter into derivatives transactions in the PRC. They are: a. banks; b. non-bank financial institutions ("NBFI"); and c. foreign invested enterprises ("FIE"). Banks and NBFIs require banking licences and may only enter into derivative transactions for hedging purposes. FIEs comprise (i) wholly foreign owned enterprises ("WFOE"); and (ii) sino-foreign owned joint ventures ("SFJV") and include foreign banks, foreign finance companies and bank branches . There are no specific restrictions for WFOEs but SFJVs may only enter into derivative transactions for hedging purposes as well. State-owned enterprises and collectively-owned enterprises can therefore only transact through a duly authorised bank or NBFI. So it looks as if China National Oil Company (Corp.?) and China State Power Corp. do not have the capacity nor the authority to enter into derivative transactions themselves in the PRC. I have also found a copy of the results of some legal research we had done a year or two ago on these issues. If you or Cynthia would like to see it I'd be happy to send a copy on. - pic10634.pcx - pic22412.pcx - pic26659.pcx
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