Enron Mail

Subject:Project Janus
Date:Fri, 8 Sep 2000 09:44:00 -0700 (PDT)

Ken, I thought it would be better if I typed my thoughts for you since my
hand writing can be somewhat difficult to read.

Before you decide the methodology for moving our project beyond the D. Ambani
phone call, I would like to share a few thoughts that I believe reduces the
risk of Enron being an E&P buyer. I know the implications of making a large
E&P purchase are far greater than just the cash requirement, but I believe
with the following changes to the plan presented yesterday and a little 3rd
party information, you may feel more comfortable making this decision. Under
the buy/sell arrangement a small risk of buying will always be present, but I
believe the risk reward ratio in this case has very strong merit. My goals
for Enron are three fold; a) sale the assets, b) get cash in the door before
year-end, and c) get fair value for the assets given the current situation.
My comments touch upon five topics:

1) Reverse the buy/sell process giving Enron the control vote
2) Pay the Penalty
3) Contact someone at the Janus Fund to talk about Reliance's Financial
4) Thoughts on non-Reliance bidder's
5) Information and the future process

Reverse the Buy/Sell Process: The plan outlined yesterday using the
buy/sell scenario is the best scenario for achieving all of our goals. The
risk for Enron which is most troubling is the possibility of being a buyer
versus a desire to be a seller. I firmly believe if we make one change to
the plan as described below, we can increase our probability of a successful
sale to near 100%. If we don't use a but/sell arrangement I am concerned
that we will not get fair value or cash in the door this year. In fact, I
suspect we will elect not to sell because of contract or valuation problems,
which in effect leave us with a stranded asset and a lot of employee

When you talk with Dhirubhai we can propose the buy/sell concept with RIL
making the first bid to purchase. Enron then has the right to sell at that
price or increase the bid by 5% and RiL must sell. Since we are now in the
control position the 10% tax logic we talked about yesterday no longer is
valid, so I would describe the 5% as a control premium. The only reason we
want the buy option is in the event they offer a very low number. I would
suspect them to bid in the $550 to $650 million range. They just turned down
my offer to purchase their assets at $450mm and indicated we were
substantially below their value when I tried to engage them in a dialogue.
They know Enron paid $620 million just 12 months ago for the same position.
We know they internally have reserves booked higher than ours and have a
strong desire to have a substantial upstream position that they can control.
It is possible that RIL would bid less than $500 million but I put that
probability at less than one percent. This reduces Enron's risk dramatically
and increases our probability of getting all of our objectives met. We also
get an added benefit, from pitching the deal with RIL as the first bidder,
because this will strengthen the perception that we (Enron) want to be the
buyer, which is a key perception to have a fair auction with only one
legitimate buyer, Reliance.

If we pitch the deal as suggested above, we need to recognise going in that
they probably want the control position as well. I believe they would pay a
very large value for these assets due to their tax position and by bidding
first they take great risk of leaving a lot of money on the table or not
getting the deal at all. I would suspect that they will at a minimum
suggest we flip a coin to see who bids first. Initially I would just say no,
but we may need to deal with this issue and probably should decide early on
if it is a deal killer. If we did flip a coin, we would wait until the
documents were final and the escrow agreement was signed so there would be no
backing out without a penalty. In this scenario it would actually help get a
more impartial document done quicker if neither party knew the bidding
sequence until after the drafting was finalized.

Pay the Penalty: While it is not the way we want to do business, the worst
case scenario under the proposed escrow agreement is to forfeit $25 million
if we elected not to follow through in an Enron buy scenario. Considering
the upside to the buy/sell under either sequence (Enron first or RIL first)
it may be worth the risk of losing the escrow under a black Friday scenario.
I want to think about this over the weekend, but while I was thinking this
afternoon the risk reward seems to be very favorable.

Contact someone at Janus Fund: This was suggested yesterday and I would
strongly urge you to do this if you feel comfortable making the inquiry.
Janus bought approximately a 5% position in RIL about 1-2 months ago. I
think you will get a very positive report on both the cash front and their
desire to make the upstream a key part of the company.

Thoughts on Non- Reliance Bidders: I have spent a lot more time thinking
about this issue. I can talk you through the reasons, but as long as
Reliance is involved and a western company can only purchase a 30%
non-operated working interest, we will have to take a huge discount to fair
value. I will be very surprised if we could get $450 million. Again, going
to the Shell's, BG's,,,etc early on in the process, I believe, is a huge
mistake, both internally and externally.

Information Flow and Process: Ken this is a very sensitive area but I feel
compelled to mention this to you. I am concerned about too many people
knowing our plan and strategy and possibly others wanting to branch out with
the intentions of helping, but actually causing problems. This needs to be
managed by one person, not three or four. To meet all of our objectives this
has to be an orchestrated deal from a to z. I think you know more about my
background then most others in Enron. I worked the E&P M&A business for 10
years and did pretty well at it. I know the oil business and I believe that
is a key to getting a good deal done. I know these assets and all of the
complex issues surrounding the assets, our subsidiaries, tax issues and the
book considerations. I'm the best person to get this deal done once you
decide the risk the company is willing to take. I know the limits of my
authority and I will work within those bounds and keep the OOC completely and
totally informed so proper decisions can be made when necessary.

Ken, I promise you I will use others in the company where and when
appropriate. If I need help in India, I would not hesitate to ask Sanjay for
such. However, the last thing we can afford is excess discussion in India on
this deal. If Dhirubhai agrees to the deal, we need to get a meeting set in
Europe at a neutral site to start the process. My main objective is to have
a successful deal.

I have decided not to go to India so we can concentrate on moving this
forward. Also, I will need your guidance on the future of the E&P plans for
Enron when we decide the direction we plan to take on Panna, Mukta and
Tapti. I have looked at the key people necessary to make this happen and can
talk to you about that as well if you so desire.