Jim:

From the comments I've heard no one is trying to make you the scape goat.  If 
your feeling victimized by someone, give me a call and lets talk about it.  
There was a breakdown in communication between the deal team, trading and 
accounting on this issue.  Its not a good thing that it happened, and now we 
have to deal with it. 

The bottom line is that the PRM unwind cost is $203 cost plus the 5.5 bcf 
re-injection cost (based on the fact that we have been representing 65.5 bcf 
of pad gas since we began the process).   As you mention in your note, your 
use of 5.5 bcf of pad gas over the past years is independent of the balance 
sheet, and has been a great way to optimize the Bammel asset. 

Since we didn't adjust the pad gas volume we represented on the balance 
sheet, we are obligated to deliver 65.5 bcf and therefore must include a 5.5 
bcf re-injection assumption as part of the unwind cost.   What we need to do 
know is decide the best way to hedge this obligation, given the forward price 
curve and the uncertainty as to when Closing will occur.

Regards,
Brian




Jim Schwieger
01/10/2001 04:56 PM
To: John J Lavorato/Corp/Enron@Enron, David W Delainey/HOU/ECT@ECT, Brian 
Redmond/HOU/ECT@ECT, Wes Colwell/HOU/ECT@ECT, Thomas A Martin/HOU/ECT@ECT, 
Edward D Gottlob/HOU/ECT@ECT
cc:  
Subject: Bammel Storage Cushion Gas Issue.

I'm very disappointed and angry with comments that have been made since the 
HPL Asset Disposition Team realized the impact of what has been communicated 
to them over the last six weeks regarding the level of Bammel cushion gas 
that would be available on March 31, 2001.  The following is designed to set 
the record straight in the spirit of "Facts Are Friendly".  

First of all, it has been communicated multiple times over the last six - 
eight weeks to Patrick Wade and Brian Redmond and brought to the attention of 
Wes Colwell,  Dave Delainey and John Lavorato in the meeting held before year 
end to discuss the unwind cost.  All parties indicated that it was not a 
problem and that everyone was aware of the situation.  Now Im hearing just 
the opposite and in fact insinuations that the Storage Book screwed up by:  
1) originally booking injection and withdrawal assumptions down to 60 BCF.  
2) reversing the April, 2007 5.5 BCF injection assumption on December 31, 
2000. 
 1)  The decision to record injection / withdrawal assumption down to 60 BCF 
was made in 1992 by Kevin Hannon and Steve Smaby.  This was based on
         the fact that we had been down to 60 BCF physically in the several 
years proceeding 1992.  Since 1992 we have been down top 60 BCF twice, 
the          latest  being March, 1996.  Throughout this entire period the 
Accounting Dept was well aware of the Bammel assumptions and the 
physical           capabilities of the facility.  
 2)  The reversing of the Bammel assumptions has nothing to do with 
anything.  When we communicated the unwind cost of $203 million it included 
the         reversal of all assumptions including the April, 2007 injection.  
This was appropriate since we would be down to the 60 BCF physical minimum.  
In         addition we were told to make sure there was no Working Gas left 
in the ground.  If the reversal of the assumption was the problem then it 
could be         reversed, but then the unwind cost would go up.
It has also been suggested to me that I should have continued to follow up 
irregardless of the number of times I communicated the issue.  If I was 
dealing with lower level employee's I would agree, but given the level 
involved I feel this suggestion is totally out of line.  

From my perspective the only way I had a chance of catching this issue was if 
I had reveiwed all documents including the one specificly addressing the 
cushion gas of 65.5 BCF.   I beleive everyone on this memo was communicated 
to and was aware of the situation.  Perhaps they were involved with other 
issues related to the sell?  I am disappointed in the way everyone is scuring 
around to cover their backside.