---------------------- Forwarded by Brent A Price/HOU/ECT on 12/27/2000 10:16 
AM ---------------------------


Brent A Price
12/20/2000 10:17 AM
To: Jeffrey A Shankman/HOU/ECT@ECT, Mike McConnell/HOU/ECT@ECT
cc: John L Nowlan/HOU/ECT@ECT, Scott Earnest/HOU/ECT@ECT, Thomas 
Myers/HOU/ECT@ECT 
Subject: First Gas Writedown

First Gas is a liquid fuel supply deal executed in May, 1997 that is linked 
to a power plant in the Phillipines.  Volumes were booked at 31,000 barrels 
per day with delivery starting June, 1999 through Dec., 2002.  Fuel 
deliveries did not begin until April, 2000 and have averaged between 
10,000-12,000 barrels per day, well below the volumetric level that was 
booked.   This deficiency is due to delayed plant start-up and reduced 
consumption and has resulted in approximately $1 million per month in accrual 
losses to the Global Products group since April, 2000.  To make matters 
worse, the power purchaser from First Gas has recently announced that they 
are going to minimally dispatch the power plant to which this transaction is 
linked through the end of 2001.

To properly reflect the current volumetric levels associated with First Gas, 
we need to take volumes from the 31,000 barrels per day level that was 
originally booked to approximately 6,000 barrels per day for the remainder of 
the deal.

In addition, freight charges related to this deal have doubled since April, 
2000 increasing from the $.70 originally booked to the current $1.45.  Per 
conversations with John Chismar he expects freight to remain at this level 
for the foreseeable future.

To properly reflect the current costs of this deal, we need to increase the 
Dubai spread to which this deal was booked from $2.91 to approximately 
$3.65.  Initial estimates of the loss resulting from both the volumetric and 
cost proposed write-down of First Gas is $30 million.  We are continuing to 
refine this number and will update you when we get a final amount.

On a final note, Arthur Andersen has repeatedly reviewed First Gas throughout 
2000 and to this point we have been able to spin enough of an argument to 
justify delaying a writedown.  Given the current market conditions discussed 
above (which are publicly known), the size of the writedown and the fact that 
their next review will be for year-end earnings, I believe Arthur Andersen is 
going to require us to write down at least a substantial portion of First Gas 
before they will sign-off on earnings.  Obviously, I have not recently 
discussed this with AA&Co. but I do anticipate this being an earnings issue.

Please call me if you wish to discuss further.  I appreciate any help you can 
give us in this matter.