Below are the key points of a conference call held on Friday, May 11, 2001. Attending were Gene Massey of Arent Fox and Coralina Rivera, Dan Masters, and Paul Y'Barbo of Enron. The call was in reference to the LNG supply contract between EcoElectrica and Cabot LNG. Enron LNG got the answers it hoped to get and more.

1. Article 12.3 gives Cabot the right to not deliver a Winter Cargo to Eco if Cabot is unable to complete an Algerian Loading within a window specified in the contract. Cabot could give notice to Eco as late as 3 days prior to the scheduled loading of the Winter Cargo that Cabot will be unable to deliver the cargo. The failure to complete the Algerian Loading must not be the result of a default by Cabot or Distrigas. The failure to achieve an Algerian Loading may not necessarily be the result of an Algerian Force Majeure situation. 

2. Article 12.3 (b) (iv) gives Eco the right to secure replacement fuel for the Winter Cargo. If Eco notices Cabot that Eco has the opportunity to secure replacement fuel, then Cabot has 10 days to notify Eco whether or not they are willing to release the right to not deliver the Winter Cargo. Eco may buy replacement fuel regardless of whether or not Cabot releases the right to not deliver the Winter Cargo. In other words, even if Cabot commits to delivery of a Winter Cargo, Eco is under no obligation to purchase a Winter Cargo from Cabot. 

If Cabot is unable to release its right to not deliver a Winter Cargo, then Eco will buy the replacement fuel and will not have to pay the Demand Charge or Demand Surcharge on the Winter Cargo, a quantity equal to 119,000 cubic meters (~$4.7 MM).

If Cabot releases its right to not deliver a Winter Cargo and Eco still buys the replacement fuel, then Eco will receive no reduction in the annual Demand Charges and Demand Surcharge.

Eco has until December 1st to give notice that it has the opportunity to buy replacement fuel. It was Gene's opinion that the sooner Eco gives notice (today would be good), the less likely Cabot would be willing to give up its right to not deliver the Winter Cargo. Thus, the more likely Eco would be able to get a reduction in Demand Charges and elimination of the Demand Surcharge.

Important Note: The economics of the deal work such that the largest monetary benefit of buying replacement fuel exists when December/January/February U.S. natural gas prices are at their lowest point of the year.

If U.S. natural gas prices were to go down a little further, Eco would want to buy more non-Cabot LNG than just the Winter Cargo replacement.

3. Per Article 7.5, Eco's annual purchase commitment is 66% of the LNG consumed at the Power Facility up to a maximum of 19.46 TBtu (~7 Standard Cargoes). In a year in which the Power Facility consumes 9 Standard Cargoes, Eco would need to "purchase" 6 Standard Cargoes from Cabot. Failure to do so would result in payment of liquidated damages of approximately $0.36/MMBtu.

Important Note: Per Article 7.5, if replacement fuel is purchased rather than buying a Winter Cargo from Cabot, that quantity counts as though it were purchased from Cabot for the purpose of assessing whether or not Eco met its annual purchase commitment. Thus, in a year in which the Power Facility consumes 9 Standard Cargoes, Eco could buy replacement fuel instead of a Cabot Winter Cargo plus 5 Standard Cargoes from Cabot and still meet its annual commitment.

There are benefits to Eco for buying replacement fuel - certainty of supply and a lower price. Enron LNG should continue to pursue a deal with Eco. I plan to schedule a meeting with Mariella Mahan as soon as she is available.

I will provide an update of the economics of this trade in my next e-mail.

Paul