Jeff, I don't believe the offer I showed you of $39 M is unreasonable. In 
fact the team had recommended $42 M based on a number of measures.  I see the 
6X multiple of annualized Q2 earnings as one of the best measures of the 
potential value of this company.

I don't see it in the best interests of Enron to be transferring assets below 
a reasonable market value between business units.  You can trust that I will 
be keeping the Energy Capital Resources team's feet to the fire on the 
realization of this value if you do not purchase the company.

If you and Steve can come up with a better indication of value, I will 
support that transaction.

Regards
Delainey

---------------------- Forwarded by David W Delainey/HOU/ECT on 07/13/2000 
07:29 PM ---------------------------


Jeffrey Sherrick@ENRON
07/13/2000 07:17 PM
To: David W Delainey/HOU/ECT@ECT
cc:  
Subject: C-Gas

Dave,  I have ask Steve Harper, Jack Harmuth, Howard Selzer,and  Glenn Fox to 
work with Steve Pruitt and see if the number you offered can be supported.  
The value for proved developed reserves and the financial/legal issues can be 
reviewed rather painlessly here in Houston.  The value for the  proved 
undeveloped reserves will most likely require a visit to the working team to 
see the program particulars, verify the acreage and , concluded the validity 
of this estimate of PUD value.  The idea of paying before tax NPV10% for an 
assumed 3.5 year program on top of the PD &PUD reserves will require a more 
indepth review.  

Obviously, we want to do this as simply as possible and I was prepared to 
take the package "as is, where is" at book value which I understood to be in 
the 30-32MM$ range including debt.  Dave I understand what you are doing and 
I would support this effort if we were selling the asset outside of the 
company.   I want to do what is best for Enron at this time which I believe 
is to transfer this asset to EGEP for the reasons i outlined in my prior 
memo.  It will benefit C-gas via direct access to technology and specialists, 
it will benefit EGEP for marketing and a US presence and it will benefit ENA 
by moving the asset from your books without a loss and releasing the valuable 
intellectual capital ENA could employ elsewhere in a higher yielding business 
venture.  However, with the premiums you have placed on the properties it is 
going to be very difficult to make this transaction happen.  (However, we are 
willing to try)  ENA has had this on the market for over a year with the 
intent to sell it at book if possible.  Prices have improved, but I believe 
even your team would admit this is still a project to get book in the market 
today.  Your estimated value at the current strip at a Before Tax 10% 
discount for Appalachian reserves seems a little aggressive for the market 
let alone an inter-company transfer.  

When we talked about this a couple of weeks ago we said it would be a fair 
transaction and at the time you were hedging that it would be around book.  I 
understood your logic for needing to talk with your team but I was relying on 
a fair deal to result.  Dave, I'm only sending this memo to you because I 
feel this is being pushed way past fair by your team with the intent that if 
we pay this it is a home run for your new team and since we are in a bind, 
let's see what happens.  I know this is a very small piece of business for 
you and the time it takes to read this is more than you can afford to this 
asset or transaction.  If fact,  the easy thing for you to do is get mad and 
say you don't have the time and stop the transaction.  On the other hand, if 
you believe the right thing for all parties is to do this at book, say so and 
you'll never deal with this piece of business again.  I hope in this case you 
will put the greater good of Enron in front of ENA's desire to hit a home run 
at EGEP's expense and in the spirit of ONE-ENRON move these assets to EGEP at 
book value.  
As I said in the beginning we will try to get to your number, but I am 
concerned that we will spend a lot of time and require effort from all of the 
teams that could be eliminated if you and I decided to make this transaction 
at book.  In fact, it would be the easiest transition for the C-Gas team 
which you've indicated to be a concern for your team.  I am available through 
voice mail and I can get my lotus notes most days.  Best thing is to leave a 
voice mail and a good time for me to call you back.

Thanks Dave for your time,
Jeff