Enron Mail

Subject:RE: Non-Core Business Response for Consideration
Cc:greg.whalley@enron.com, mark.frevert@enron.com
Bcc:greg.whalley@enron.com, mark.frevert@enron.com
Date:Wed, 28 Nov 2001 17:35:42 -0800 (PST)

Ken, Thanks for your message. Communication, even if it is brief, from yo=
u is absolutely critical at this time. While Enron has a very tough road a=
head, I think I can speak for several people on my team that we are support=
ive of the non-Dynegy route regardless of the option we ultimately plan to =
pursue. I know the best thing I can do for Enron is to sell our remaining =
assets to either BG or another counter party. I am committed to this task =
and we will continue to focus on BG, but we need to be prepared that it may=
be necessary to take a different path to sell the India E&P assets. In a =
strange way, the termination of the Dynegy merger may actually help the E&P=
sale because it takes away the automatic loss of operatorship ONGC was usi=
ng as leverage. Depending on Enron Corp.'s plans, we may have a much stron=
ger message to play with our Indian partners and the GOI. They should be c=
oncerned that we will keep ownership and operatorship long term, and they s=
hould also be concerned that we will not want to spend the capital to expan=
d the projects (something the GOI/ONGC really wants to do). After you anno=
unce Corp's plan, I will go to India and meet with our partners and the GOI=
in this regard. =20

Based on your note below and earlier comments, I know the trading business =
is a key component to your future core operations. I am supportive of that=
decision because I saw the enormous value it can generate in the right cir=
cumstances. As I have mentioned before, I think the company should sell bu=
sinesses such as the E&P company that are non-core. It is the right thing =
to do, especially in these circumstances. However, some of the non-core bu=
sinesses generate good cashflow (like the E&P company) and we have to be ca=
reful in this environment to make sure the company supports the "valuable" =
non-core businesses until they can be monetized. =20

I also know most of your senior advisors are disciples of the trading busi=
ness. Because they grew up in that environment, they are very comfortable =
and knowledgeable of this business model and there will be tremendous press=
ure to maintain certain trading activities or people for the future even wh=
en the near-term value is questionable. I hope somebody at the table asks =
the question, if we focus our limited financial resources to maintain this =
future benefit, have we lost a "valuable near-term non-core" resource? I k=
now these decisions are not easy or clear-cut, but in this new paradigm th=
is could happen pretty easily since most of the players at the table do not=
understand Enron's non-core businesses or what it takes to optimize near-t=
erm value. This comment is not intended to offend anybody, but it is a conc=

For example, Enron made financial commitments of $10.5 million to our staf=
f to maintain operations and sell our assets. We've sold everything except=
EOGIL and we have negotiated mutually acceptable PSA's with two different =
companies for EOGIL, but due to some extra-ordinary circumstances, this has=
proven to be a tough sale. As I mentioned in the first paragraph, I think=
we can get there, but it may take a little more time and we need to mainta=
in staff during the interim.=20

I recognize everything has changed due to recent events. I am not asking f=
or a handout because that is the way it was before or anything like that. =
My point is the company will have to make tough decisions regarding which i=
ndividuals to incentivize and I believe the existing commitments to the E&P=
team should be maintained even though this is a non-core business. Reaffi=
rming the company's commitment to the $10.5 million will give us a good pro=
bability of keeping enough of the core staff to achieve our goals and monet=
ize the assets soon. I recognize that $10.5 million is not a trivial sum of=
money, but without these individuals we stand to lose $50 to $100 million =
in the next 12 months; therefore, I have believe this is the right decision=
for Enron.

I believe EGEP is one of the "valuable" non-core businesses, but if this be=
comes a point of controversy I would at least like the opportunity to prese=
nt my case in person to one of you.=20

Thanks for taking the time to read my note.=20
-----Original Message-----
From: =09Ken Lay - Office of the Chairman =20
Sent:=09Wednesday, November 28, 2001 4:23 PM

As you have heard, Dynegy is terminating the merger agreement today. Among=
other things, this means we are now free to pursue other alternatives - wh=
ich we are actively doing. As a consequence of uncertainty about the deal =
- and now Dynegy's announcement - Enron's debt was downgraded to below inve=
stment grade levels today by S&P, Moody's and Fitch. =20

In response to this action, we have initiated a plan to protect value in ou=
r core trading and other energy businesses. At the same time, we are neari=
ng the completion of the business review process announced last week. Once=
this process is complete, we will be conducting a comprehensive restructur=
ing of our business. Regrettably, but unavoidably, this will include the s=
ale of non-core assets and the implementation of a comprehensive cost savin=
g plan, including layoffs.=20

We are taking these actions to focus our resources on preserving the value =
of our core businesses, retaining our employees who are key to our future s=
uccess, and maintaining relationships with our trading counterparties. Thi=
s must be our priority to establish a more solid footing for the rest of En=

I know you have serious concerns about what this all means for you. Althou=
gh, there are no guarantees, you should know that we are still in this figh=
t and remain absolutely committed to protecting the value of the ongoing bu=
sinesses of Enron. All I can ask is that we all be supportive of each othe=
r, stay focused on our work as best we can, and stick together while we wor=
k to overcome these latest challenges.

Even six or so weeks ago, none of us could have imagined that we would be w=
here we are today. We will not recover in six weeks what we have lost, but=
we will work to stabilize and then rebuild this great company. As always,=
I appreciate the extraordinary contributions each of you make. Thank you.