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---------------------- Forwarded by Jeffrey A Shankman/HOU/ECT on 10/02/2000 
01:33 PM ---------------------------


Chris Mahoney
09/29/2000 02:16 AM
To: Mike McConnell/HOU/ECT@ECT, Jeffrey A Shankman/HOU/ECT@ECT, John L 
Nowlan/HOU/ECT@ECT, Greg Whalley/HOU/ECT@ECT
cc:  
Subject: how to go forward in the oil markets


CUSTOMER BUSINESS - EOL
Jeff - I think your ideas of adding marketing and research analysis to the 
group are good starting points. I don't feel this will increase revenues for 
us in 2001 as our  efforts here are only to win volume from others in a thin 
volume environment.  Eventually the captured deal flow should help the group 
trade from a better knowledge base but for the next year it will require a 
significant recruitment and training effort.   Both the recruitment and the 
teaching process are ones that we need to focus on.  Please let me know what 
you have in mind on the recruitment side and I would like to highlight that I 
feel there are very few people to teach the analysts and associates.  I plan 
on spending an increasing amount of my time working with the younger team 
that I'm assembling in London.   By end October, the London office will have 
5 managers, 4 associates and 1 analyst in our group.  This is a real shift 
from the approach of the past where the focus was on recruiting directors.   
Given our previous track record on recruiting from the outside (about 33% 
success in terms of performing well and acclimating to enron) I think this is 
the right approach but we must realise this is a slower process when we look 
to revenue growth and one that will also require us to shift more focus 
toward teaching. My plan is to put much of the associate resources toward EOL 
marketing initially and see what talents they have for being marketing and 
analysis.  The one analyst joining the group is coming over one of the 
consulting companies in London and I'm putting him in charge of drawing up a 
list of potential customers in every European country.  Please let me know if 
you have any plans of bringing somebody in to organise globally the marketing 
business.  Can't help but feel that we are very marginal in the electronic 
trading of oil and could lose all of our business in the near future.  Having 
seen the ICE demo I would prefer that system of ours because of volume.  This 
is a complaint that I have heard from many traders regarding the use of our 
system.  The challenge is how can we put up more volumes, more markets, and 
tighter 2 ways to convince more people to trade with us and not get run 
over.  What do we know about the ESPEED system and what they are going to 
have.  I saw a Reuters story saying they were launching Oct 2nd with Koch, 
Dynergy, Entergy, Willams, and a few others.  Are we thinking about trying to 
join up oil markets with either of these two sites and what are the plans if 
we do begin some of the small customer basis we do have?   This is area that 
we giving a great deal of effort and attention to but what are our plans if 
we fail to be the largest in this platform.  I don't feel that in the oil 
business we will be successful unless we can be the most preferred site 
because most companies will not have two websites up on the computers.   We 
are having a difficult time getting anybody but the most aggressive trading 
companies to look at our numbers so it seems difficult to believe the 
industry will look at two different e-trading sites.   

BUILDING THE PHYSICAL TRADING BUSINESS 
This has always received luke-warm interest from Enron.  I believe that the 
inefficiency within the oil markets is not great enough to try and profit on 
that
alone.   So when we talk about going big that really means getting involved 
in some kind of steel and trying to dominate certain aspects of the physical
business.  Tankage and shipping are the easiest and quickest ways for us to 
increase the business we are already doing in these areas with the shortest
financial commitment.  Mike and Jeff you should be aware though that the 
corporate commitment to be in the oil business has previously been poor.  We 
can
candycoat this subject but it is very clear that most of our competitors are 
more aggressive on the credit and performance risk in emerging markets.  We 
have
a credit department that have done a poor job, if any at all, in getting out 
there visiting with the national oil companies that we have to be able to 
participate with
(petrobras, pertamina, petrolimex, sinochem, sinopec, egpc, nnpc) if we have 
any real plans of significantly expanding our physical volumes.   We are also 
the
worst company in the oil business in putting out a contract that shows we 
have a commitment to perform.  Our contracts are also drafted with many 
escape clauses that will be rejected by many end-users who will insist on a 
greater performance guarantee.  As we discussed briefly in Singapore, I think 
there are several airlines that we could target in the U.S. for physical 
supply.  I will tell you now that legal would not accept the consequential 
damages that the airlines have in their tenders.   Previously, I have not 
gone after this business because I didn't believe we would have the political 
clout or sponsorship from those in your position to take legal on in such 
matters.  Please consider this (I will fax you a tender offer from Japan 
Airlines) and lets discuss if we are ready to accept that if we fail we are 
willing to accept that it could cost us several million dollars.  That kind 
of loss I have never experienced and seen it happen on very few occasions but 
it is something that we have to accept if we want to go after the airline 
business.  


I will let you know more my thoughts about how we go should try to go 
forward....this message was more to highlight how I'm trying to advance the 
group along and what are the challanges we face at the moment.  Lastly, on 
that theme we are trying to work with IT over here to develop some systems 
that will make us better suited to do customer business.  At the moment 
everybody is working off of individual excell spreadsheets and we are trying 
to get toward a server based system
and options system that would be available to everybody and designed by IT 
people instead of traders.  I will let you know if we need any help from you 
on this as intially we do seem to be getting stonewalled by the London IT 
department.