-----Original Message-----
From: Proctor, Shemin V. [mailto:sproctor@akllp.com]
Sent: Monday, March 04, 2002 2:38 PM
To: Parks, Joe
Subject: FW: FW: Gas Storage Agreement with Duke Energy Field Services


Joe,
I spoke with Centana's attorney. According to him, they are not opposed
to the escrow account, just the hassle of paper work, but he is checking
with his commercial person and will get back to me today. I told him ENA
wants to do the deal, ENA is willing to open the escrow account, but
that's the deal. So I expect to hear from him shortly.

Attached is the email from Centana's attorney. At the very beginning of
Mike Richards' email he lists all of his claims.

-----Original Message-----
From: Nemec, Gerald [mailto:Gerald.Nemec@ENRON.com]
Sent: Tuesday, February 19, 2002 12:32 PM
To: Proctor, Shemin V.; Mann, Kay
Cc: mark.ellenberg@cwt.com
Subject: FW: FW: Gas Storage Agreement with Duke Energy Field Services


Kay,  Mark is aware of this transaction.  The following is his response
to Centana's counsel email.  I did discuss with Mark this morning, the
current course we are following with Centana and he agreed it made
sense.  

As it stands now we would sell all the gas in-place to Centana and they
would net out post-petition fees.  Our business people feel that we have
used the storage services post-petition and consequently those fees
would be an administrative expense.  An amount equivalent to the
pre-petition fees would be held in escrow until the bankrutpcy court
resolved the pre-petition amounts.   All remaining amounts would be
delivered to Enron North America.  

>  -----Original Message-----
> From: 	"Mark Ellenberg" <Mark.Ellenberg@cwt.com>@ENRON  
> Sent:	Friday, February 15, 2002 8:22 AM
> To:	Nemec, Gerald
> Cc:	melanie.gray@weil.com; david.wolnerman@weil.com; Mann, Kay
> Subject:	Re: FW: Gas Storage Agreement with Duke Energy Field
Services
> 
> 
> He is wrong on just about every point.  In the few instances where he
has
> stated correct legal principles, he has misapplied them.
> 
>    the bankruptcy code expressly cuts off interest on unsecured claims
as
>    of the petition date.
>    refusing to act under the contract unless prepetition debt is paid
is a
>    violation of the automatic stay.  in this regard, it should be
noted
>    that obligations maturing postpetition are still prepetition debts
to
>    the extent they arise from a prepetition contract, such as here.
>    both set off and recoupment require that there be a debt owed to
the
>    debtor by the counterparty and a debt owed by the debtor to the
>    counterparty.  here, the unstated premise of centana's position is
that
>    centana's obligation to return gas is a debt owed by it to to
enron.
>    this is wrong.  centana is merely a bailee of the gas and its
return
>    obligation is not a debt.  this is clearly established in the
cotton
>    warehouse cases i have previously sent you the cites for.
>    section 365(d)(3), on its face, only applies to leases of
nonresidential
>    real property.  a gas storage agreement is obviously not such a
lease.
>    the court has already ruled that enron deserves time to determine
>    whether to assume or reject executory contracts.  in addition, the
court
>    has ruled that parties to executory contracts are not entitled to
relief
>    from the stay or adequate protection.
>    centana should be placed on notice that they are violating the stay
by
>    demanding prepetition debt and by refusing to turn over property of
the
>    estate.  this exposes them to a contempt citation and damages.  we
>    should thank them for providing a smoking gun in the form of
richard's
>    e-mail.  in addition, they are in breach of contract for refusing
to
>    comply with enron's withdrawal requests.  this exposes them to
breach of
>    contract damages claims based on the decline in the value of gas.
>    they are entitled to be paid as an administrative expense for
storage
>    charges based on storage actually used since december 2.
> 
> you should be aware that we resolved a similar standoff with ngpl by
> agreeing to immediately reject storage contracts and paying
post-petition
> administrative storage charges if they cooperated in the sale of gas
to a
> third party via in-ground transfer.  maybe that would work here.
> 
> 
> 
>                     "Nemec,
>                     Gerald"               To:
mark.ellenberg@cwt.com
>                     <Gerald.Nemec@        cc:
>                     ENRON.com>            Subject:     FW: Gas Storage
>                     Office:               Agreement with Duke Energy
Field
>                                           Services
>                     02/14/02 05:26
>                     PM
> 
> 
> 
> 
> 
> 
> Mark,  Attached is the authority under which Centana is holding
portions of> 
> our gas in storage.  I will forward a copy of the storage agreement
also.
> 
> >  -----Original Message-----
> > From:         "Michael S. Richards"
<msrichards@duke-energy.com>@ENRON
> > Sent:         Wednesday, February 13, 2002 11:33 AM
> > To:           Nemec, Gerald
> > Cc:           Greg A. Swidensky
> > Subject:           Gas Storage Agreement with Duke Energy Field
Services
> > Importance:        High
> >
> > Gerald, this e-mail will serve as a follow-up to our telephone
> conversation
> > from the other day.  There are a number of arguments we believe we
have
> > with respect to our entitlement to pre-bankruptcy lease payments
under
> our
> > storage lease with Enron.    These arguments include our rights
under our
> > storage lease agreement, common law setoff rights, recoupment,
> > rejection/assumption and adequate protection  issues.  These issues
are
> > briefly addressed below:
> >
> >    Under the terms of our September 1, 2001 Gas Storage Agreement,
Enron
> is
> >    obligated to pay monthly interest in the amount of 1.5% for past
due
> >    lease obligations.  Currently, Enron is past due for both pre-
and
> >    post-bankruptcy lease obligations to us.  Under the terms of the
> lease,
> >    we are authorized to suspend withdrawals until all past due
> obligations,
> >    including interest, are paid.
> >    We believe that under Texas law we are entitled to common law
> recoupment
> >    and/or setoff rights.
> >    We don't know whether Enron intends to accept or reject our
storage
> >    lease.  If Enron rejects our 3 year lease, we calculate the
rejection
> >    damages for anticipatory breach to exceed $3.6 million, which is
in
> >    excess of the value of the gas.  Recoupment rights are generally
> >    available to determine a just liability on the claim of one party
> >    against another with respect to a single, indivisible contract.
> >    If recoupment is not available, setoff enables us to  offset our
> claims
> >    under the lease against Enron's claims for the gas, subject to
the
> >    automatic stay,  because mutual debts may be offset against each
other
> >    to achieve a just result.  Official Comm. of Unsecured Creditors
v.
> >    Manufacturers and Traders Trust Co. (In re Bennett Funding
Group), 146
> >    F.3rd 136 (2nd Cir. 1998).
> >    Section 365(d)(3) of the Code requires that a
debtor-in-possession
> >    timely perform all of its obligations under an unexpired lease
until
> it
> >    is assumed or rejected.  Therefore, not only rent, but also other
> fees,
> >    taxes, and attorneys' fees, to the extent provided for under the
> lease,
> >    must be paid under Section 365(d)(3).  Courts have held late
charges
> for
> >    postpetition, pre-rejection lease payments to be obligations that
must
> >    be paid as administrative expense claims.  See, e.g., In re MS
Freight
> >    Distribution, Inc., 172 B.R. 976 (Bankr. W.D. Wash. 1994).
> >    We believe that we are entitled to the setting of an early
deadline by
> >    the court for Enron to determine whether or not to accept or
reject
> this
> >    contract in order to protect our recoupment/setoff rights and we
> believe
> >    we are entitled to relief from the automatic stay to permit the
> exercise
> >    of the setoff rights (if recoupment should be found not to
apply).
> >    Pending such determinations, we believe that we are entitled to
hold
> the
> >    gas to preserve our recoupment/setoff rights.  See, e.g.,
Citizens
> Bank
> >    v. Strumpf, 516 U.S. 16 (1995).
> >
> > Our preference is to work out a deal with Enron for the purchase of
this
> > gas, with a credit against the purchase price for both pre- and
post-
> > bankruptcy lease obligations.  We believe we should seek bankruptcy
court
> > approval to the extent this involves pre-bankruptcy obligations.
> >
> 
> 
>
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