I mentioned on our conference call on Monday that J-Block has had problems 
meeting our nominations from the Judy/Joanne/Janice reservoirs.

Up until recent CATS maintenance shutdown on 15 May, they were making up for 
reduced production volumes by nominating to supply gas at the NBP which they 
are entitled but not obliged to do.  Since return from outage at the end of 
May they have declined to nominate at the NBP.  

From 1 January to 15 May, the Sellers use of the NBP delivery option kept 
underdeliveries to 350 mmcf (ie one day's maximum quantity) in total.  Since 
returning from the maintenance shutdown, underdeliveries have totalled 850 
mmcf ( averaging 77mcf/d ).

We believe that following the sharp rise in market prices during the 
maintenance period, they have decided to default on the contract rather than 
make up deliveries from other sources.   They have an effective cap on the 
penalties of about 5 pence per therm (after taking into account the value of 
the liquids) and therefore they are not making up the volumes when the daily 
price is substantially higher than about 16 pence per therm.

Prior to the CATS shutdown, we had made them a proposal to enable them to 
deliver additional volumes at  another alternative to avoid default but they 
have not responded yet.

You mentioned that in your negotiations with Phillips they had committed to 
getting us all the gas regardless of the cap on the penalties.  This has cost 
us about $1.5 million to date and they seem to be institutionalising their 
non performance.    Perhaps a phone call by you might help.  

By the way I will be in Houston on Thursday and Friday to meet with the 
delegation from Croatia and I will probably be tied up the entire time but if 
you need me
for a phone call I can break away.

John